shareholder expectations transnet mandate … · transnet rail engineering (previously transwerk)...

TRANSNET ANNUAL REPORT 2007 1

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FOUR-POINTTURNAROUND

STRATEGY

• Implementation of riskmanagement strategy

• Sustainability valuemeasurement framework

• Contract lifecyclemanagement

• Corporate performancereporting

• Safety

ECONOMIC DEVELOPMENT

TARGETED SECTORS

LOW

ERCO

STOF DOIN

G BUSINESS

• Skills audit and matching• Recruitment and retention• Capacity and skills• Performance management• Talent management• Culture

• Strategic asset and liabilitymanagement

• Disposal of non-corebusinesses

• Post-retirement funding• Gearing and cash flow

management• Cost of capital

• Efficiencies andperformance reliability

• Integration (port/railinterface)

• Customer focus• Infrastructure and

maintenance programme

Hum

ancapital development

Strategic balancesh

eet m

anag

emen

t

Redirect and reengineer thebusiness

STRATEGY

Transnet is committed to enabling economic growth through providingintegrated, appropriate port, rail and pipeline infrastructure andoperations in a cost-effective and efficient manner and within acceptablebenchmark standards.

This commitment is consistent with Transnet’s shareholder’s expectation asset out in, amongst others, the Shareholder Compact between Transnet andthe Government of the Republic of South Africa.

The Company continues to give meaning to its strategic intent through theimplementation of the four-point turnaround strategy.

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SHAREHOLDER EXPECTATIONS

STRATEGIC INTENT

2 TRANSNET ANNUAL REPORT 2007

Mossel Bay

Johannesburg

BULK

INDUSTRIAL INDUSTRIAL

BULK

INDUSTRIAL

BULK

Cape Town

Richards Bay

Durban

East London

Port Elizabeth

Saldanha

Sishen

Maputo

Ngqura

Ports andTerminals

Pipelines

Rail

TRANSNET’S REACH

Operational reach

Capital expenditure by corridor

National Ports Authority

35

30

25

20

15

10

5

0Sishen-Saldanha

Planned capital expenditure for the next five yearsGauteng – Cape Town Gauteng – PE, Ngqura, EL Gauteng – Durban Gauteng – Richards Bay Country-wide

Pipelines Other

R bi

llion

Freight Rail Rail Engineering Port Terminals

GROUP STRUCTURE

Transnet is the custodian of major rail, port and pipeline assetsin South Africa. With more than R77 billion in assets and employingmore than 48 000 people, it provides seamless and integrated bulkfreight services through five interdependent operating divisionsnamely: Freight Rail, Rail Engineering, National Ports Authority,Port Terminals and Pipelines. Transnet Ltd’s only shareholder is the State.

Transnet Freight Rail (previously Spoornet) operates freight trainsserving customers in export mining (coal and iron ore), mining,manufacturing, agriculture and forestry and containers andautomotive. It has a 22 247 km rail network, of which about1 500 km are heavy haul lines. Its infrastructure represents about80% of Africa’s rail infrastructure.

Transnet Rail Engineering (previously Transwerk) is responsible forin-service and out-of-service maintenance, refurbishing, wreckrepair, conversions and upgrade of locomotives, wagons andcoaches, manufacture of new wagons, wheels, bogies and rollingstock components. Rail Engineering has 150 depots and sevenfactory centres countrywide.

Transnet National Ports Authority (previously National PortsAuthority) is responsible for the safe, efficient and effectiveeconomic functioning of the national ports system which it manages,controls and administers on behalf of the State. It manages theseven ports within South Africa, namely: Saldanha Bay, Cape Town,Mossel Bay, East London, Port Elizabeth, Durban and Richards Bay.The Port of Ngqura, when operational, will become the eighth portunder National Ports Authority’s control.

Transnet Port Terminals (previously South African Port Operations)is responsible for cargo handling and logistics managementsolutions. Its port operations service customers across a broadspectrum of the economy including the shipping industry, vehiclemanufacturers, agriculture sector, steel and mining industry.The division operates 15 port terminals across six South Africanports.

Transnet Pipelines (previously Petronet), the pipeline operatingdivision of Transnet, will ensure the security of supply of criticalenergy (in the form of petroleum products) through its network of3 000 km of underground pipelines. It serves the South African oilindustry and operates throughout the eastern parts of South Africa,along the Durban to Gauteng corridor, traversing five provinces:KwaZulu-Natal, Free State, Gauteng, North West and Mpumalanga.

The above operating divisions are supported by Transnet Projects, Transnet Properties, Esselen Parkand Group Services.

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GROUP KEY PERFORMANCE INDICATORSfor the year ended 31 March 2007

Target Actual Target2007 2007 2008

Total Group 12,7 8,4 13,0Freight Rail 13,9 4,0 12,0National Ports Authority 9,0 12,0 11,4Port Terminals 12,0 14,0 15,0Pipelines 6,3 15,0 17,0

Forecast performanceThe Group is confident that it will be ableto improve performance in the year ahead.The focus for the year ahead will be aimedat achieving targeted revenue growthfrom increased volumes transported.

PerformanceThe Group did not achieve itsrevenue objective in the current year,due mainly to the under-performanceat the Freight Rail operating division.This division experienced capacityconstraints and derailments as wellas customer-related problems.

TOTAL REVENUE INCREASE (%)


Total maintenance spendcompared to budget– Freight Rail 3 890 5 495 5 247

% achieved 90 125 > 90

Forecast performanceThe programme addressing the historicalunder-maintenance of locomotives, wagonsand infrastructure, which was in its secondyear during the year, will further address poorreliability. This programme is expected tocome to an end during 2009, by which stagea comprehensive preventative maintenanceplan, covering all aspects of the Freight Railfleet, will be implemented.

PerformanceThe Group exceeded its target andcontinues to address backlogmaintenance in an effort to improvepoor reliability and availability ofrolling stock and consequentlyimprove customer service.

INFRASTRUCTURE INVESTMENTSTarget Actual Target

2007 2007 2008

Actual capital expenditure compared to budget (R million) 11 847 11 674 16 935% achieved 90 99 > 90

Forecast performanceThe target for the year is 42% higher than thecurrent year spend. The Group is confident thatthe target will be achieved. A Capital Projectsoperating division has been established todrive and manage all infrastructure projects inexcess of R300 million. The focus of thedivision will be to improve capital planning andexecution processes within the Group.

PerformanceThe Group exceeded its target anddemonstrates the commitment of theGroup to provide customer service,address the investment backlog andprovide a stable platform to supporteconomic growth.


EBITDA margin (%) 34,8 40,7 > 35*

Forecast performanceThe Group adopted a medium-term targetof margins in excess of 35%.

PerformanceThe Group exceeded its target for theyear by 17%. All operating divisionscontributed to the Group’sperformance. Revenue growth (referabove) and operating efficienciescontributed to this performance.

CAPITAL AND FINANCIAL EFFICIENCY


Cash interest cover (times) 5,4 5,4 > 5*

Forecast performanceThe Group adopted a medium-term targetof greater than 5 times. However, in the yearahead the capital expenditure programmewill make the target difficult to achieve.

PerformanceThe Group achieved its target and thisdemonstrates the ability to generatestrong operational cash flows andservice its obligations.* Medium-term targets


Gearing ratio (%) 47,9 39,0 < 50*

Forecast performanceThe Group adopted a medium-term targetof between 40% and 50%.

PerformanceThe Group exceeded its target and thisprovides a stable platform from whichto support the capital expenditureprogramme. The improvement is duemainly to the reduction in the post-retirement benefit obligations ofthe Group.


Cash flow return on investment (CFROI) (%) 5,8 6,8 > 6*

Forecast performanceThe Group adopted a medium-term targetof greater than 6%. However, in the year aheadthe capital expenditure programme will makethe target difficult to achieve.

PerformanceThe Group exceeded its targetand demonstrated its ability to earnan appropriate return on investmentcapital.

Revenue –continuingoperations

R28 214million8% change

CONSOLIDATED SALIENT FEATURESfor the year ended 31 March 2007

HIGHLIGHTS

14 000

12 000

10 000

8 000

6 000

4 000

2 000

003

Cash generated from operations(R million)

04 05* 06* 07*

7 17

8

7 04

0

10 0

89 11 2

44

13 4

88

6

5

4

3

2

1

003

Cash interest cover (times)04 05* 06* 07*

4,3

3,5

4,8

4,5

5,4

12 000

10 000

8 000

6 000

4 000

2 000

003

Capital expenditure (R million)04 05 06 07

10 6

01

7 82

0

5 64

1 6 60

1

11 6

74

2007* 2006* %R million R million change

Revenue 28 214 26 034 8,4EBITDA 11 488 10 301 11,5Operating profit 8 470 8 138 4,1Profit for the year 6 322 4 828 30,9

Number of ordinary shares issued (millions) 12 661 14 710 (13,9)Profit per share (cents) 49,9 32,8 52,1

Total assets 77 254 78 346 (1,4)Total debt 39 821 48 820 (18,4)Capital and reserves (including minorities) 37 433 29 526 26,8

Cash flows from operating activities 13 488 11 244 20,0Capital expenditure (excluding intangibles) 11 674 6 601 76,9

EBITDA margin (%) 40,7 39,6 2,8

Refer glossary of terms on page 245* Continuing operations

R11 488million

EBITDA –continuingoperations 12% change


90

80

70

60

50

40

30

20

10

003

Gearing (%)04 05* 06* 07*

65

83

61

46

39

12

10

8

6

4

2

003

Return on average total assets (%)04 05* 06* 07*

9

7 7

10

11

4

3

2

1

003

Interest cover (times)04 05* 06* 07*

2,5

2,1

2,6

3,4

3,5

40 000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

003

Net assets employed (R million)04 05* 06* 07*

17 6

41

9 91

7

21 5

59

29 5

26

37 4

33

CONSOLIDATED PERFORMANCE INDICATORSfor the year ended 31 March 2007

R13 488million

Cash flow generated from

operations

March March March March March2007* 2006* 2005* 2004 2003

PROFITABILITY MEASURESEBITDA margin (%) 40,7 39,6 29,0 17,0 21,9Return on average total assets (%) 11 10 7 7 9

SOLVENCY RATIOSGearing ratio (%) 39 46 61 83 65Cash interest cover (times) 5,4 4,5 4,8 3,5 4,3

CASH FLOW MEASURESOperating cash flow to total debt (%) 34 23 18 12 17

* Continuing operations


Gearing –continuingoperations

39%15% improvement20% change

CONSOLIDATED FIVE-YEAR REVIEWfor the year ended 31 March 2007

Equityattributable

to theshareholder

R37 311million27% change


45 000

40 000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

003

Revenue (R million)04 05* 06* 07*

23 9

36

27 2

98

25 2

60

26 0

34

28 2

14

SA

A 1

7 34

2

SA

A 1

6 33

9

12 000

10 000

8 000

6 000

4 000

2 000

003

EBITDA (R million)

04 05* 06* 07*

8 26

9

6 48

9

7 33

3

10 3

01 11 4

88

SA

A 7

68

SA

A 9

53

9 000

8 000

7 000

6 000

5 000

4 000

3 000

2 000

1 000

003

Operating profit (R million)04 05* 06* 07*

6 19

5

4 61

6

5 41

4

8 13

8 8 47

0

SA

A 3

57

SA

A 1

34

March March March March March2007* 2006* 2005* 2004 2003

Restated RestatedR million R million R million R million R million

INCOME STATEMENT AND CASH FLOWRevenue 28 214 26 034 25 260 43 637 41 278EBITDA 11 488 10 301 7 333 7 442 9 037**Depreciation and amortisation (3 018) (2 163) (1 857) (2 600) (2 258)Operating profit 8 470 8 138 5 414 4 750 6 552**Fair value adjustments 2 385 815 4 890 (4 529) (7 074)Net finance costs (2 437) (2 406) (2 107) (2 211) (2 637)Profit/(loss) before taxation 8 222 6 837 7 330 (6 211) (625)Taxation (1 902) (2 042) (1 582) 204 16Profit/(loss) for the year 6 322 4 828 5 810 (6 332) (421)Cash generated from operations 13 488 11 244 10 089 7 040 7 178

BALANCE SHEETEquity 37 433 29 526 21 559 9 917 17 641Non-current liabilities 22 832 22 189 30 789 32 217 32 669Current liabilities 16 989 26 631 25 228 30 566 18 456

Total debt 39 821 48 820 56 017 62 783 51 125Equity and liabilities 77 254 78 346 77 576 72 700 68 766

Non-current assets 57 843 50 144 59 967 57 156 54 883Current assets 19 411 28 202 17 609 15 544 13 883

Total assets 77 254 78 346 77 576 72 700 68 766

* Continuing operations

** Excluding R2,8 billion relating to the sale of MTN Group Ltd shares and the sale of Fleetcall.

Cash flow return on

investment (CFROI)

6,8 %17% change

BOARD OF DIRECTORS


1. Mr FTM Phaswana (62)ChairmanBA (Hons), BCom (Hons) (EnergyEconomics), (RAU), MA (SA)

Other directorships and trusteeshipsChairman: Anglo American Corporationof South Africa LtdChairman: Ethos Private Equity LtdChairman: Anglo Platinum LtdAnglo American PlcNaspers LtdMedia24 LtdInyathelo Trust (The South AfricanInstitute for Advancement)

2. Mr BT Ngcuka (53)BProc (University of Fort Hare), LLB(University of South Africa),MA (International Relations)(Webster University, Geneva, Switzerland)Businessman

Other directorships and trusteeshipsChairman: Vuwa Investments (Pty) LtdChairman: City Couriers (Pty) LtdChairman: Top Fix Holdings LtdChairman: Basil Read Holdings LtdChairman: Transnet Foundation TrustThe PA Group LtdGrowthpoint Properties LtdMutual & Federal (Pty) LtdSail Group LtdRolfes LtdSTRB AttorneysAmadlelo Agri

3. Ms M Ramos (48)Group Chief ExecutiveInstitute of Bankers Diploma (CAIB)(Institute of Bankers), BCom (Hons)(Economics) (Wits), MSc in Economics(University of London)

Other directorships and trusteeshipsSanlam LtdRemgro LtdPatron of Yabonga Children’s Project

4. Ms KC Ramon (40)BCompt (Hons), CA(SA), Senior ExecutiveProgramme Graduate (Harvard Business School in conjunctionwith Wits Business School)Chief Financial Officer: Sasol Ltd

Other directorshipsSasol Ltd

5. Mr PG Joubert (74)BA (Rhodes), DPWM (Rhodes), AMP(Harvard)Director of companies

Other directorships and trusteeshipsChairman: BDFM Publishers (Pty) LtdChairman: Munich Reinsurance Companyof Africa LtdChairman: Sandvik (Pty) LtdSandvik Mining and Construction RSA(Pty) LtdSouth African Airways (Pty) LtdCycad Financial Holdings LtdIMS Holdings (Pty) LtdSouth African Brain Research InstituteVoest-Alpine Mining and Tunnelling

6. Dr I Abedian (51)BA (Hons) (Economics) (University of CapeTown), MA (Economics) (University ofCape Town), PhD in Economics (SimonFraser University in Canada)

Founder and Chief Executive: Pan AfricanCapital Holdings (Pty) Ltd and Pan AfricanInvestment and Research Services

Other directorships and trusteeshipsAFReC (Pty) LtdChairman: PBS (Pty) LtdMunich Reinsurance Company of Africa LtdDevelopment Bank of Southern AfricaClopique 98 (Pty) LtdVelvet Moon Stones (Pty) LtdIAMA Global Trade (Pty) LtdTransnet Second Defined Benefit Fund

7. Prof GK Everingham (57)BCom (UPE), BCom (Hons) (UCT), MAS(Illinois), CA(SA)Professor of Accounting at UCT

Other directorships and trusteeshipsChairman: Diocesan College (Bishops)CouncilChairman: Chris Barnard FundGK Everingham Investments (Pty) Ltd

8. Ms NBP Gcaba (36)B Juris (University of Fort Hare), LLB(University of Natal)Partner at Spoor & Fisher Attorneys

Other directorships and trusteeshipsTransnet Retirement Fund Property TrustTransnet Second Defined Benefit Fund

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9. Ms Z Stephen (33)Group Company SecretaryBProc (University of Durban-Westville)LLB (University of Natal)Post-graduate Diploma in Corporate Law(Unisa)

10. Mr CF Wells (57)Chief Financial OfficerBCom (University of Cape Town), CA(SA)

Other directorships and trusteeshipsChairman: Transnet Pension FundSethani Ltd (section 21 Company)Transpoint Properties (Pty) Ltd

11. Ms NR Ntshingila (43)Diploma in Advertising – AAA Schoolof Advertising, BA (University ofSwaziland)MBA – Morgan State University,Maryland (USA)Chief Executive Officer: Ogilvy – SouthAfrica

Other directorships and trusteeshipsChairman: Ogilvy PRChairman: ZoomOgilvy AfricaPWC CSI BoardNtinta Investment

12. Dr ND Haste OBE (62)OBE for Services to Civil EngineeringChief Executive Officer: Aldar/Laing O’Rourke JVChief Operating Officer: Laing O’ RourkeMiddle East

Other directorships and trusteeshipsAl Naboodah Laing O’ RourkeDLF-Laing O’ Rourke

13. Ms NNA Matyumza (44)BCom (University of Transkei), BCompt(Hons) (University of Transkei), LLB(University of Natal)General Manager: Eastern Region, EskomDistribution

Other directorships and trusteeshipsBorn Free Investments (Pty) LtdIkusasalethu InvestmentsE-ValuationsSouth African Women’s Association (SAWA)

14. Dr SE Jonah KBE (57)ACSM, MSc, DIC, DSc (hc) D Phil (Lc)Chairman: Jonah Capital (Pty) Ltd

Other directorships and trusteeshipsAnglo American Corporationof South Africa LtdCopper Resources CorporationMoto Goldmines LtdStandard Bank of South AfricaChairman: Equator Exploration (Pty) LtdChairman: Scharrig Mining LtdCo-Chairman: Uramin Resources IncChairman: Transnet Second DefinedBenefit Fund

15. Mr S Nicolaou (42)Bachelor of Pharmacy (Universityof the Witwatersrand)International Trade (Institute ofInternational Trade of SA)Group Senior Executive: Strategyand Trade Development: Aspen PharmacareHoldings Ltd

Other directorships and trusteeshipsChairman: South African Express Airways(Pty) LtdAspen Pharmacare International (Pty) LtdGarec Pharmaceuticals (Pty) LtdMerck Msizi TrustMerck Msizi Advisory Board

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EXECUTIVE COMMITTEE


The Executive Committee is mandated to execute theBoard-approved strategy.

1. Mr CA Möller (Chief Executive: Transnet Pipelines)

2. Mr T Morwe (Chief Executive: Transnet Port Terminals)

3. Mr R Vallihu (Chief Executive: Transnet Rail Engineering)

4. Mr KXT Socikwa (Head: Restructuring)*

5. Mr BJ Dludlu (General Manager: Corporate and Public Affairs)*

6. Mr KC Phihlela (Chief Executive: Transnet National Ports Authority)

7. Mr CF Wells (Chief Financial Officer)* By invitation

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8. Mr L van Niekerk (Chief Operating Officer)

9. Mr P Maharaj (Group Executive: Human Resources)

10. Ms M Moses (Group Executive: Transnet Projects)

11. Ms V Dunjwa (Chief Risk Officer)

12. Ms Z Stephen (Group Company Secretary)

13. Mr VD Kahla (Group Executive: Office of the GroupChief Executive)

14. Ms M Ramos (Group Chief Executive)

15. Mr SI Gama (Chief Executive: Transnet Freight Rail)

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Cape Town container terminal’s capacity will increase to 2,6 million 20 foot equivalent units (TEUs) by 2011

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EXECUTIVE STATEMENTSChairman’s statement 12

Group Chief Executive’s review 20

Chief Financial Officer’s report 42

CHAIRMAN’S STATEMENT

INTRODUCTIONThis is the third annual letter I amwriting as Chairman of thisCompany, covering a year in whichTransnet’s transformation andrestructuring have reachedmaturity. And it is an opportunityfor me to share our views on thepolicy, regulatory and economicdevelopments that affect ourbusiness, positively andnegatively, as well as ourassessment of how the Companyfares under such circumstances.

It gives me great pleasure indeedto note that, whilst spelling outthe challenges facing thebusiness and its managers, thesereports have broadly been abouttracking the Company’sremarkable journey of

transformation. Transnet istransformed and is transforming.

Certainly, Transnet’s turnaroundinto a world-class cost-effectivefreight business continues to besupported by buoyant economicconditions. But that turnaroundhas, more importantly, also beendue to a radical restructuring ofour operations and of ourCompany’s finances, madepossible by the interconnectionof our interdependent operations.Disposals of non-core assets havefreed management to focus onthose operations that are core aswell as helping us achieve anecessary strengthening of ourbalance sheet. But first, a look atthe economic environment inwhich we are operating:


Fred PhaswanaChairman

ECONOMIC OUTLOOKSouth Africa’s economy registeredyet another strong performanceduring the past year. Real grossdomestic product grew by 5% in2006, broadly in line with thegrowth rates of the preceding twoyears. Average GDP growth of 5%over three successive years waslast experienced more than aquarter of a century ago and whenthe economy was stimulated by anarrow boom in gold prices. It isclear that the economy has nowshifted to a new, broadly-basedgrowth trajectory. As the custodianof the country’s integrated ports,rail and pipeline networks, Transnetplays a key role in supporting thisnew economic path.

Robust economic performance overthe past three years has paved theway for significant employmentgains. To cite but one industrywhich is an important client ofTransnet, employment in motormanufacturing surged to a 10-yearhigh in the third quarter of 2006 asmanufacturers increased theirproduction to meet higher localand international demand.

The positive economic performancecan be attributed to a number offactors including a favourableinternational macro-economicenvironment, a sharp recovery incommodity prices since 2003 andthe growth-inducing benefits of astable domestic macro-economicenvironment. But there is a flipside. Increasing global competition,rising interest rates, volatility incommodity and oil prices

contributed to a challengingoperating environment for Transnetand its customers in 2006. And,perhaps most importantly, theglobal shortage of projectmanagement and engineering skillsremains a key problem faced by allbusinesses. South Africa is notalone in facing this problem – ourcountry’s industries are having tocompete with those of the rest ofthe world for skills. Skills areincreasingly mobile, andmanagements can ill afford to becomplacent over the issue.

Of significant concern to Transnetitself has been the relatively poorperformance of exports. Once againthey fared badly against imports,registering a growth of 5,5% thispast year against the 18,4%recorded for imports. Thisunbalanced growth has been mainlyattributable to the subduedperformance of the mining sectorin 2006, where production in mostsub-sectors declined in the firsthalf of the year and where exportswere, in some cases, restrictedby infrastructural capacityconstraints. This projected growthin import and export volumes isindicative of the capacity additionsthat Transnet needs to plan for.We at Transnet are responding byensuring that our owninfrastructure will be adequate todeal with our clients’ likelyrequirements. But I mustemphasise that expansion of ourinfrastructure will be carried outresponsibly, ensuring that anyinvestment is financially soundand sustainable.

The manufacturing sector continuedto display robust growth in 2006,with exports of manufactured goodsrising by 4,4% in real terms. Highereconomic growth has increased thedemand for distribution and logisticsservices. The transport, storage andcommunications sector grew at 5,5%in the first half of 2006, slightlybelow the average annual growthof 6,2% between 2001 and 2005.Sustained growth in demand overan extended period, withoutconcomitant increases in capacity,has resulted in capacity constraintsin most parts of the freight logisticssystem. As an example, containervolumes through the ports havegrown by an average rate of 11,7%per annum over the past five years –and are projected to continue togrow at similar rates over themedium term – increasing demandson Transnet’s infrastructure.

Simply put, Transnet is faced withthe challenge of having to put inplace, and to finance, majorintegrated expansions of itsoperations over the next severalyears. It can be done in a stableregulatory environment in whichmanagement’s attention is notdeflected from its proper role ofmanaging our operations. We shallnot expand in a disorganisedfashion – every single project willbe subject to rigorous technical andfinancial criteria. We shall notinvest in projects that do not offerappropriate returns. Transnet is,and should remain, a businessfounded on sound businessprinciples.


“Transnet is, and shouldremain, a businessfounded on soundbusiness principles”

CHAIRMAN’S STATEMENT continued

While a mild slowdown in globalgrowth is expected over the next twoyears, South Africa’s medium-termprospects are very promising.Growth is forecast to average 5%per annum over the next three years.A more sustainable growth path isexpected to emerge, withinvestment spending and exportssupplanting household consumptionas the main drivers of economicgrowth. As this happens, greaterdemands will be placed, for example,on Transnet’s ability to handle goodsand transport them from and to theports. Investments in the energy,telecommunications and transportsectors will remove bottlenecks andlower input costs for South Africanmanufacturers, thereby enhancingtheir global competitiveness.

Export growth is expected tostrengthen from an annual averageof 1,1% between 2002 and 2004 to6,7% over the next three years ascommodities and manufacturedexports respond to rising globaldemand and as the competitivenessof local businesses improves.Transnet will play a key role insupporting this growth throughcomplementary investments inport, rail and pipeline capacity andthrough improvements in servicedelivery designed to providedomestic firms with access tointegrated bulk transport systems. High commodity prices andimproved macroeconomic policiescontinue to support growth in sub-Saharan Africa. The region’s GDPexpanded by an estimated 5,3% in2006 (though some countriesperformed markedly better than

others), marking the thirdconsecutive year that regionalgrowth has exceeded 5%. Thisexpansion has been broad-based,with more than a third of theregion’s countries experiencinggrowth rates in excess of 5%. Thehigh growth trend is forecast tocontinue as buoyant domesticdemand is expected to spur growthin the non-commodity sectors ofmost countries. Regional economicintegration is a key focus area forGovernment, and Transnet willexamine its potential role inthis regard.

FINANCIAL RESULTSIt is satisfying to report another yearof excellent results which underscorethe correctness of Transnet’sstrategy and its implementation.Revenue increased by 8,4%,reflecting strong volume growth in allof our operating divisions with thesingle exception of Freight Rail (referdetails in the Group Chief Executive’sreview on page 34). Operating profitof R11,5 billion before depreciationand amortisation was 11,5% higherthan in the preceding year. This wasachieved through significantoperating efficiency improvementsacross the board, including andparticularly at Freight Rail, as aresult of the effectiveimplementation of the businessreengineering programme, Vulindlela.The Vulindlela project is focused onthe reengineering of our businessprocesses needed to deliver bettercustomer service, productivity andprofitability improvements,efficiency, synergies and costsavings.

We are on the right track tobecoming a clearly focusedcustomer-oriented business.

The year’s profit from continuingoperations is R6,3 billion. I ampleased that all of the financialtargets set out in the CorporatePlan for the year and in theShareholder Compact wereachieved in aggregate. Accordingly,the key financial ratios of margin,gearing and cash interest cover allshowed improvement. Again, we areon the right track to becoming aCompany whose finances areappropriate and sustainable.

TRANSFORMATIONThe past year has, once again, seenremarkable progress in theimplementation of ourtransformation strategy. ToTransnet, transformation meansseveral things. Firstly, it refers tothe structural transformation of thebusiness to focus on thenecessarily complementary coreareas of freight rail, ports andpipelines. Secondly, it refers toservice delivery (in Transnet’s case,the efficiency improvements andcapacity building that will enable itto deliver appropriate cost-effective services to its customersand clients). Thirdly, it refers to thewider socioeconomictransformation projects beingpursued by our sole shareholder –the Government of the Republic ofSouth Africa.

The structural transformation ofTransnet Ltd into a focused ownerand operator of ports, rail and


pipelines is in its final stages andwill be completed in the new year.Now that we have completed thetransfer of SAA, the country’snational airline, and Metrorail, thecity commuter rail business, to theDepartments of Public Enterprises(DPE) and Transport (DoT),respectively, and the sale of anumber of other businesses andinvestments, notably the Victoria &Alfred Waterfront (V&A), theCompany will focus in the new yearon disposing of the remaining –though less-complex and smaller –non-core businesses.

The executive is to be commendedfor its achievements during theyear. They include:• Another set of positive

financial results based onincreasing freight volumes,results that reaffirm theappropriateness of ourturnaround strategy and of itsbenefits for our customers;

• Significant progress indisposing of the non-coreportfolio. Importantly, the morecomplex disposals have beenconcluded;

• Implementation of the capitalinvestment programme.The capital investment ofR11,7 billion was 77% greaterthan that of the previous yearand was the largest investmentTransnet’s core businesseshave ever made in a single year.A significant effort has goneinto establishing a deliverycapacity within theorganisation that can sustain

the high level of investmentrequired over the medium term;

• Embedding the operationalefficiency enhancementmeasures across the business.Executive management’sdetermined focus onoperations continues to driveour growing operationalefficiencies, which areincreasingly benefiting ourclients and customersespecially those of FreightRail’s operations;

• Purposeful roll-out of thehuman resources strategy,which is starting to bear fruitacross the board; and

• Renewed focus on riskmanagement, especially thesafety of the Company’s assets,of its employees and of itscustomers’ cargo. Performancein all of these areas showed asignificant improvementagainst last year and points tothe efficacy of our riskmanagement systems andprocesses.

DISPOSALSOn the disposals front, it ispleasing to note that the process ofexiting from the range ofinvestments that we viewed as non-core was conducted in a mannerthat was transparent, fair andconsultative.

The process allowed us to playmidwife to some of the mostimaginative and transformativetransactions in our country. The factthat none of the transactions havebeen credibly challenged testifies

to the rigour of the processes and isa tribute to management. I also wishto commend management and myBoard colleagues for theirexemplary conduct during thedisposal process, placing theinterests of the Company (and, byextension, of the country) ahead oftheir own personal and commercialconsideration. They operatedaccording to the highest standardsof corporate governance and ethics.As the disposal strategy reachesfinality during the next year,Transnet will be left with a group ofcomplementary core operationsthat are central to its business.

STRATEGY REFINEMENTThe success in achieving thefinancial turnaround of thebusiness, underpinning theoperational effectiveness, hasfreed the executive to concentrateon anchoring the remaining pillarsof the turnaround, most notably animprovement in operationalperformance and service delivery.The results of this focus areevident in the operationalperformance of the business (referto the Group Chief Executive’sreview on page 24).

The four-point turnaround strategywill continue to anchor and guidethe focus of the organisation overthe coming year. Additionalemphasis will be placed ondeveloping integrated transportsolutions for South Africa’s bulkgoods and manufacturing sectorsand on accelerating theimplementation of our humanresources strategy.


“It is satisfying to reportanother year of excellentresults which underscorethe correctness ofTransnet’s strategy . . .”


Coupled with the successfulresolution of the pension fund deficitproblem – relating to the TransnetSecond Defined Benefit Fund (referto the Group Chief Executive’s reviewon page 37 and the Chief FinancialOfficer’s report on page 45) – thecompletion of the disposalsprogramme will mark the completionof management’s dedicated effortsto restructure the balance sheet.From now on, the focus of ourattention will be on strategicmanagement of the balance sheet –that is, ensuring that the balancesheet remains sufficiently strong tosupport the financing of our growth.This is imperative as we continue toimplement the investmentprogramme.

In brief, the pillar in the four-pointturnaround strategy relating to thebalance sheet will henceforthchange to reflect this shift in focus– from restructuring the balancesheet to its strategic management.

To recap, the four-point turnaroundstrategy will remain broadly thesame, save for the pillar of thebalance sheet. In future, ourcorporate strategy of owning andoperating world-class ports, freightrail and pipelines will henceforthbe based on the following:• Redirecting and reengineering

the business;• Strategic balance sheet

management;• Improving our adherence to the

highest standards of corporategovernance and of vigilant riskmanagement; and

• Revitalising our human capital.

The shift towards strategicmanagement of our balance sheetis crucial, especially as we continueto implement the substantialinvestment programme that willrequire significantly increasedborrowings from the debt capitalmarket. Amongst other things, thisbalance sheet strength allows us todevote particular attention tostrengthening the individualbalance sheets of those divisionsthat need more attention thanothers. There is strength in unity.As it is, Transnet receives no Stateaid, even though the State is ouronly shareholder – a fact that isoften poorly understood. OnlyMetrorail, which was our passengerrail operating division until itstransfer to the SARCC in March2006, received a subsidy to enablefares to be maintained ataffordable levels.

The key benefit of having the Stateas the only shareholder is ourability to take a necessarily long-term view of investment decisions.This chiefly explains our ability toinvest in large projects that have alonger payback period than mighttypically be acceptable in theprivate-sector.

In other words, as would be the casewith a publicly-quoted company, wehave to fund our operations from acombination of our own cashresources and the debt capitalmarket. The effectiveness willdepend on the strength of ourbalance sheet – a normal practicein business.

Our shareholder Minister, AlecErwin, MP, regularly states that wehave to operate according to thesame disciplines as the private-sector. Because we do not receiveany subsidies, we have to rely onthe strength of our balance sheetto fund our expansion programmes.Like private corporations, wesubject ourselves to the samemarket and regulatory scrutiny andreceive ratings by the same creditrating agencies.

Transnet must generate a rate ofreturn on its investments thatensures the growth andsustainability of the Company.

HUMAN CAPITALThe Board is heartened by thecommitment and focus with whichthe executive is moving inimplementing the human resourcesstrategy needed to sustain theturnaround. This is particularly soin an economic environment inwhich technical skills areparticularly scarce. The investmentwe make today in our people willbenefit not only Transnet but alsothe rest of the country as the sizeof the skills pool grows. This is whythe link with industry andGovernment’s Joint Initiative onPriority Skills Acquisition (JIPSA)initiative is so vital. Great nationsand great organisations areformed by skilled, energised andcreative people.

People perform better in a positivework environment. That is why thefocus on defining, creating and


nurturing a new and appropriatecorporate culture at Transnet isboth timely and important. Asmuch of the work has been doneby the executive in aligningsystems, processes, structures,policies and procedures, we wouldexpect that the coming year willsee added focus on the corporateculture project of the humanresources strategy. This project ispart of a wider one that includesagreeing a new and relevant visionand mission for Transnet linked toits transformation and which isdesigned to culminate in theprocess of rebranding Transnet tocommunicate a new corporatebrand architecture built aroundthe philosophy of “One Company,One Vision” (also refer to theGroup Chief Executive’s reviewon page 22).

The rebranding project was basedon research commissioned amongvarious stakeholders on the equityembedded in the old corporatebrand and on the most appropriatebrand strategy for communicatingthe revitalised and transformedTransnet.

Last year, I reported that we hadadjusted the levels and structureof Transnet’s executiveremuneration to bring it in linewith that of executives serving incompanies of comparable size andcomplexity. The stability in theexecutive team partly testifies tothe efficacy of this process plusthe implementation of the newlong-term scheme both to

incentivise and retain talentedand high-performingprofessionals.

We are pleased that themodernisation of our remunerationsystem has been achieved withoutcompromising our commitment toour strong ethos of public service.

The year also saw the executivemaking considerable progress informulating strategies to retaintalent and, importantly, in activelymanaging the careers of our bestperformers. The formulation ofsuccession plans for the keyleadership layers is an importantstep in mitigating one of thesystemic risks that, unattended to,might challenge the sustainabilityof the turnaround.

SAFETY FOCUSSafety has been an issue ofconcern to us as a Board. Duringthe year, the Board agreed to setup the Risk Committee to providededicated focus to this vital area.Prior to the new committee’sestablishment, risk formed part ofthe mandate of the Board’s AuditCommittee. It was felt that, to givedue regard to the safety of ouroperations – our employees, ourassets and customers’ freight – weneeded a new Committee which isnow being chaired by Mr PeterJoubert (also refer to theCorporate Governance report onpage 52). This committee willprovide a mechanism forchannelling the Board’s support formanagement’s focus on safety.

The Board also welcomes theexecutive’s renewed focus on theissue of safety across the business(refer to the Group Chief Executive’sreview on page 31). The importanceof safety in our operations cannotbe over-emphasised. It is everyone’sbusiness. Employees, management,the Board and the unions have avested interest in the improvementof safety.

ECONOMIC REGULATIONAt the start of 2007, the NationalPorts Act came into force withserious implications for ourbusiness. For some time, we havebeen engaging with the shareholderministry over the problematicaspects of the Act. Given theurgency, we felt it appropriate toset up an ad hoc committee of theBoard to structure our engagementwith the shareholder on theworrying issues that have arisenfrom the Act. I lead this committee,which also includes our Group ChiefExecutive, and I cannot overstateTransnet’s concern that asuccessful outcome of thisengagement be achieved.

It is against this background thatwe feel it proper to engageexpeditiously with the shareholder,the Department of PublicEnterprises, as well as with theDepartment of Transport, which isthe policy department. While we areconcerned over the implications ofthe Act, we remain optimistic that asense of urgency will characteriseour engagement and that a sensiblesolution, that upholds the spirit ofthe Act, will be found so that


“The investment we maketoday in our people willbenefit not only Transnetbut also the rest of thecountry as the size of theskills pool grows.”


Transnet can confidently proceedwith its investment plans.

Similarly, we are concerned at theimplications of the refusal by theNational Energy Regulator of SouthAfrica (NERSA), to approve ourapplication for a 5,6% pipeline tariffincrease for Pipelines. This matter isbeing addressed throughappropriate forums with therelevant authorities.

Transnet believes and supports therole played by independentregulators. Independent regulators –adjudicating over the safety and theeconomic spheres of enterprises –have an important role in the smoothfunctioning of a progressiveeconomy such as South Africa’s.

Accordingly, we welcome theestablishment – and, in certaininstances, the strengthening – ofthe institutional frameworkpertaining to our business. Thebirths of NERSA as well as that ofthe Independent Ports Regulator(as envisaged in the National PortsAct) are welcome additions to ourregulatory environment. We shallcollaborate with both regulators toensure that Transnet continues toserve its clients and the country asa whole efficiently.

Following the end of the year, theGovernment announced theestablishment of the IndependentPorts Regulator and named itsmembers led by its chair,Ms Gloria Serobe.

We have already strengthened ourcompliance capacity in most areasof our business to facilitate this

interface; and we look forward tobuilding a healthy workingrelationship with both regulators,based on integrity and mutualrespect (also refer to the GroupChief Executive’s review on page 37).

GOVERNANCE As you read this report, this Boardwill have been in office for almostthree years. For myself, and I amsure I speak for all of my Boardcolleagues, they have been threestimulating, demanding andchallenging years. As a Board, wehave sought to ensure that our taskremains one of guidance, support,oversight and direction for theexecutive, which has to have enoughspace to execute strategy on a dailybasis. Similarly, we have constantlyto strike the balance betweenoversight and strategicintervention. It pleases me that thisBoard has largely succeeded in thistask throughout its life, even duringthe crisis it inherited on itsformation. Members of the Boardmeet with the rest of the executivetwice each year to review strategyand business plans as well as tocontribute actively to theformulation of the Corporate Plan(business plan) ahead of itssubmission to the shareholderminister in February. These highlyinteractive sessions have proved tobe an invaluable tool in the annualbusiness planning process.

The balance between guidance andintervention is also reflected in thenumber and composition of theBoard’s committees which remainedthe same for most of the year and,indeed, during the life of this Board.

Apart from the departure morethan a year ago of one of itsfounding members – Ms MoiraMoses (to join the executive atTransnet) – the composition of theBoard has also stayed the same.On Ms Moses’s departure we furtherreinforced the Board’s skills byinviting Ms Nunu Ntshingila andDr Norman Haste OBE, to join ourBoard as independent non-executive Directors.

Local rules on Board direction aresilent on the tenure of Boards.However, internationally, two termsare deemed the acceptable norm.Anything longer than that tends toresult in familiarity setting in, whichrisks ending in denying goodcompanies the benefits of newideas that can be introduced byfresh blood.

We have to thank the currentmembers of the Board for theircommitment, especially during theinitial critical months and years atTransnet. The Company is fortunatethat it still enjoys the benefit oftheir skills, time, wisdom, diligenceand dedication.

LOOKING AHEADThe conclusion of the ShareholderCompact – setting out keyperformance indicators on financialefficiency and income as well as,developmental and infrastructureinvestment targets – made ourwork as a Company far easier thanmight otherwise have been thecase. Together with the new Articlesof Association – which were alsoapproved during the year – such aCompact is an important document


in the life of any world-classcompany.

The past year’s progress in theimplementation of strategy is alsoa reflection of the improving healthof relations between managementand the labour unions. Theinvestment in this relationshipepitomised by the StrategicLeadership Forum, which is chairedby our Group Chief Executive, isbeginning to be felt in the form ofthe improved quality of therelationship between these tworoleplayers.

PROSPECTSGiven Transnet’s focused strategyand the commitment of theexecutive and staff, I am confidentthat the next year will be anotheryear of improved performance. Thethree-year Corporate Plan (which isupdated and approved eachFebruary) gives clarity on thedirection. The range of agreed keyperformance measures in eachsignificant area of activity enablesprogress to be measured timeously.

APPRECIATIONA collaborative workingrelationship between all ourstakeholders – our employees, ourlabour unions, Government andexecutive management – isrequired if the transformation ofTransnet into a world-classbusiness is to continue succeeding.To this end, the Board wishes toexpress its appreciation to all ouremployees and management forthe commitment, loyalty and thetenacity they have demonstrated.

As a Board, we would like tocommend Group Chief Executive,Maria Ramos, and her ExecutiveCommittee for their commitment,diligence, hard work and energy indoing what is best for the Companyand for its contribution to ourcountry. We are heartened thatMs Ramos’s outstanding work isbeing noticed by others, as seen inher successive appearance onFortune magazine’s list of theworld’s most powerfulbusinesswomen – last year, sheclimbed several places to rank 16th.

I also want to thank my colleagueson the Board for their wise counseland active contribution to thesuccess of the transformationproject. Their commitment inserving on the governancestructures of the Board not onlyensures compliance with corporategovernance requirements, but alsoenhances the quality of decisionstaken. I have no doubt that theircollective wealth of knowledge andexperience will have an enormousimpact on the future of thisCompany.

We appreciate the continuedsupport that Minister Erwin, MP,is showing for our transformationprogramme. His leadership –exercised in various forums,including the Chairmen’s andCEOs’ Forum – is indispensable toour work.

Our thanks go to Mr Yunus Carrim,MP, the Chairman of theParliamentary Portfolio Committee

on Public Enterprises, and to hiscolleagues on that committee fortheir continued encouragement andinterest in our work.

In closing, I would like to thankTransnet’s customers and suppliersfor their continued confidence,support and understanding duringour transformation process. It is ourgoal to improve our business andservice offerings so that we candeliver steadily improving andcost-effective freight services.

“I am confident that thenext year will be anotheryear of improvedperformance.”


Fred Phaswana

Chairman21 June 2007

INTRODUCTIONBefore reviewing our performancefor the year ended 31 March 2007,let me introduce you to the newTransnet corporate identity, itsrationale and our new vision andmission.

Rebranding TransnetThe current year marks the end ofthe structural transformation ofTransnet from a diversified groupinto a focused and integrated freight

transport company as envisioned inour four-point turnaround strategy.Consequently, to signal the re-alignment of the business asTransnet gears itself for sustainedgrowth in its new form, we haverebranded from a multi-brandorganisation to a single, overarching“monolithic” Transnet brand to alignour corporate identity with ourbusiness strategy. The rebrandingunderscores the fact that Transnet isnow an integrated freight transport

GROUP CHIEF EXECUTIVE’S REVIEW


company with five operatingdivisions that necessarilycomplement each other.

But first, some backgroundThe name and the Company“Transnet” came into existence in1990 when the old South AfricanTransport Services (SATS) wascorporatised and renamed TransnetLtd. Although the name “Transnet”has existed for only 17 years, theorganisation itself has existed for


Maria RamosGroup Chief Executive

more than a century in one form oranother, under different names,with different ownership andreporting arrangements and withdifferent organisational structures.

Before 1990, the organisationoperated largely as a Governmentdepartment with no commercialculture to speak of. As it evolved overthe years, the organisation assumeddifferent names, including SouthAfrican Transport Services (SATS)

and South African Railways andHarbours (SAR&H). Due to thediverse nature of its operations, itcould safely be said that SATS wasresponsible for moving South Africa,its people and its freight.

In August 2004, a new Board (still inoffice today) took office and thenew management team tabled aturnaround strategy, proposing afundamental restructuring. Thiswould see Transnet’s structure and

focus change over the next threeyears from a diversified group intoa focused freight transport andlogistics business. Thistransformation strategy, knowntoday as the four-point turnaroundstrategy, was adopted by the Boardlate in 2004 and endorsed by theshareholder in 2005 when theCorporate Plan was approved.

The focused implementation of thisstrategy, which enjoys the support

of all our stakeholders, has seen allnon-core assets being sold to theprivate sector or unbundled to theState in the quest to build afocused and integrated freighttransport and logistics business.

The new Transnet, as envisaged bythe four-point turnaround strategy,is essentially driven by fiveoperating divisions thatcomplement each other. These aresupported by a number ofCompany-wide specialist functionssuch as Transnet Projects whichunderpin the turnaround.

The conclusion of the structuraltransformation prompted us torethink the Transnet brand, itsrelationship with the sub-brandsand the appropriate architecture togive content to the philosophy of“One Company, One Vision”.

To guide and inform our decisions,independent research wascommissioned to canvass the viewsof various stakeholders, includingour customers and employees.This emphatically concluded that:• The name Transnet should be

retained and

• Transnet should refresh itsbrand image to reflect:

– Customer focus;– Reliability and flexibility;– Cost-efficiency and

competitiveness;– Transparency;– Improved communication and

divisional alignment; and– An integrated solution of

bulk freight transportation.

GROUP CHIEF EXECUTIVE’S REVIEW continued


Inevitably, with a new focus, we hadto rethink our vision and mission.

Transnet’s new vision and mission Transnet is a focused freighttransport company deliveringintegrated, efficient, safe, reliableand cost-effective services topromote economic growth inSouth Africa.

This is being achieved throughincreasing our market share,improving productivity andprofitability and by providingappropriate capacity to ourcustomers ahead of demand.

New values In line with our new vision andmission as well as the new brand, wehave refined the values that underpinour business and our brand. We trustthat in your dealings with us you willexperience this unity of purpose andbe convinced that we live our newvalues and are loyal to our brand.

In brief, we would like ourcustomers:• To prefer us because we are

reliable, trustworthy,responsive and safe; andbecause

• Our employees think and arecommitted, safety-conscious,accountable, ethical, disciplined,and results-oriented.

New tag lineWe have hitherto been using“delivering on our commitments”as a tag-line, accompanying thecorporate identity. This remains

Therefore, the rejuvenation of thebrand is designed to optimise theequity embedded in the Transnetbrand so as to communicate withbrevity the revitalised Company, itsnew corporate structure, its peopleand our emerging service culture.In addition, it will provide anappropriate architecture to governthe relationship between the“mother brand” and the “sub-brands”.Refreshing the brand also providesan ideal opportunity to communicatethe repositioned Transnet – abusiness-to-business player – andwill enable the entities we no longerown to be positioned within thestrategies of new owners.

Following the monolithic brandroute, recommended by theresearch we have done away withthe old semi-autonomous andfragmented structure and replacedit with a single, integrated one.So, the new Transnet, which wepresent to you, is made up of:• Transnet Freight Rail (formerly

Spoornet);• Transnet Rail Engineering

(formerly Transwerk);• Transnet National Ports

Authority (formerly the NPA);• Transnet Port Terminals

(formerly SAPO); and• Transnet Pipelines (formerly

Petronet).

The new singular structure andcorporate identity is an optimalplatform to reinforce the “OneCompany, One Vision” drive, and itmirrors our new corporate culture.

relevant. But we wanted toemphasise our commitment toyou, our stakeholders – ourcustomers, employees, shareholder,the communities in which we operateand our lenders. Accordingly, ournew tag line is “delivering on ourcommitment to you”.

Conclusion on the rebrandingThe rebranding signals the changein the direction and focus of thebusiness, it communicates theprogress in its transformation andit explains the essence of the newTransnet. It is more than a namechange for our operating divisions.

STRATEGY IMPLEMENTATION ANDPERFORMANCE REVIEWIntroductionAt the start of this transformationjourney, we made it clear that it wasgoing to be a three- to five-yearjourney. We are entering the third

course and we have thecapability to roll it out;

• The non-core portfolio haslargely been disposed of;

• A solid platform for growth isin place; and

• We have a committed team tosustain the strategy into thefuture

Our financial and operating resultsshow that this is the secondconsecutive year in which most ofour operating divisions deliveredrevenue increases based on growthin volumes. This is in line with ourstrategy as well as with ourmandate to enable economicgrowth through helping make theeconomy competitive by optimisingSouth Africa’s freight transport andlogistics system.

“We are reliable,trustworthy, responsiveand safe.”


year with a Company that is stableand that has started investing increating appropriate infrastructurecapacity to ensure sustainablegrowth.

Perhaps the best measure of theprogress we have made as we reviewthe third year of the journey ofTransnet is to retrace our steps. Thetable below reflects the substantialprogress Transnet has made whencompared to 2004 in all the keymeasures of performance and theCompany’s financial strength.

The results so far provide tellingevidence that:• The financial turnaround is well

under way and succeeding;• The operational turnaround is

progressing well and issustainable;

• The five-year capitalinvestment programme is on

Target Improvement(Shareholder

Actual Compact) Actual Actual Actual

Measures 2004 2007 2007 vs 2004 (%) vs target (%)

Operating profit (R billion) 4,8 7,0 8,5 77 21

EBITDA (%) 17,0 35,0 41 139 16

Cash interest cover (times) 3,5 5,4 5,4 54 –

Cash flow return on

investment (CFROI) (%) 4,0 5,8 6,8 70 17

Gearing (%) 83,0 48,0 39,0 53 19

Capital expenditure (R billion) 7,8 11,8 11,7 50 Achieved 99

(target > 90)

Shareholders’ equity (R billion) 9,9 – 37,4 278 –

Progress since 2004



FinancialsIt is really heartening to report thatthe relentless application of ourapproved strategy is reflected inour financial statements for theyear. All operating divisions, withthe exception of Freight Rail, grewvolumes strongly, enabling revenuesto increase 8% to R28,2 billion.Transnet kept the increase inoperating costs, at 6%, well belowthat of revenue, enabling theEBITDA (earnings before interest,taxation, depreciation andamortisation) margin to increaseto 40,7% (2006: 39,6%). This wasdue to sustained productivityimprovements and cost-control.In fact, adjusting for once-offprovisions for the ex-gratiacontribution to the TSDBF, TPF andfor Freight Rail restructuring, thecost increase would have been only3,8%.

Depreciation, however, showed asubstantial increase of 42% toR3 billion as a result of thecombined impact of depreciation ofnew capital plus that of Freight Rail’scapitalised major maintenance.This trend is expected to continue.Therefore, the challenge is to ensurethat capital expenditure drivesplanned volume increases andproductivity improvements.

There were many operationalchallenges during the year, but thebusiness showed extreme resiliencein overcoming them. A few areworth noting here: a ship loaderstructure collapsed in Saldanha;derailments (Basklook-Cordier/

Duiwelskloof, Camden-Ermelo,Dassieshoogte and Ensel-Klipdrift);rough seas experienced in March2007 caused most ports to closefor more than five days; andadverse weather conditions saw thecoal mines failing to produce andsupply the required volumes.

However, the ongoingtransformation to make thebusiness customer-orientedensured that Transnet was able tomeet its customers’ requirementsdespite these challenges.

Given the scale of our five-yearcapital expenditure programme, wehave paid special attention to cashflow. Fortunately, this focus paidoff: the 20% increase in cash flowsfrom operations to R13,5 billionreflects the emphasis we placed oncash generation.

Transnet’s balance sheet continuesto strengthen as reflected by the27% growth of the capital andreserves of the Company and thedecrease in gearing to 39%, a 15%improvement. This strength isimportant as Transnet will beaccessing the debt capital marketsduring 2007 and into the future asit needs to secure cost-effectivefunding of relatively long tenors toassist in the financing of the capitalexpenditure programme.

Operating contextIt is hard to underestimate theimportance of transport to acountry’s economic and socialdevelopment. The efficient and

effective movement of goods andpeople is one of the principaleconomic inputs and plays asignificant role in the globalcompetitiveness of that country’seconomy.

As the custodian of ports, rail andpipelines in South Africa, ourstrategy is to ensure that weoperate these assets according toworld-class standards, therebyenhancing the growth potential ofour economy.

It is this that contextualises theframework in which Transnetoperates and this is captured inour turnaround strategy whichdrives the transformation of theorganisation from a diversifiedgroup of loosely-connectedlogistics businesses to a focusedport, rail and pipeline businessproviding world-class, cost-effective, appropriate andintegrated bulk freight transportsolutions to the South Africaneconomy. This gives local firmsan important competitiveadvantage in the globalmarketplace.

“In the past year wecompleted therestructuring ofthe balance sheet”


STRATEGY REVIEW

STRATEGIC MANAGEMENT OF THEBALANCE SHEETIn the past year, we completed therestructuring of the balance sheet.The greatest progress took place intwo areas – in the disposal of thenon-core assets and in theresolution of the pension funddeficit problem.

We have now substantiallystrengthened the position of theTransnet Second Defined BenefitFund (TSDBF). In the past year, wereported the sale of the entireholding of 75 million shares in MTN,the mobile phone group, belongingto the TSDBF. These shares wereheld in trust – through the M-CellTrust – for the beneficial interestof the TSDBF members. They,together with a further minoritystake belonging to Transnet Ltd,were sold in the market through abook-building exercise.

During the year, Transnet and itsthree pension funds, the TSDBF,Transnet Pension Fund (TPF) andTransnet Retirement Fund (TRF), alsoagreed to sell their interests in theVictoria & Alfred Waterfront to theLondon and Regional Consortium forR7,04 billion. The transaction wasprobably both the largest real estatedeal and property empowermentdeal in our country. It broughttogether international investors(Dubai World’s Isthitmar and London& Regional) and local and blackinvestors (who now hold more than25% of the shares in the newcompany). It also saw blackemployees being allocated2% equity in the new company.

As the largest single shareholder inV&A, the TSDBF (which held 44%)was the main beneficiary of thetransaction. The disposal price wassignificantly above the carryingvalue in the respective funds’balance sheets.

These two transactions, togetherwith the performance of theequities market and interest ratesmovements, bolstered the TSDBF’sperformance, taking it into anactuarial surplus position ofR1,9 billion. An independentactuarial valuation has confirmedthis surplus (refer to the ChiefFinancial Officer’s report onpage 45).

The changes to the pension fundrules that are dealt with later in thisreport will bring our funds more inline with global best practice.

Transnet played a vital strategicleadership role in achieving theTSDBF turnaround.

Of the vast and varied portfolio ofour non-core assets, the transferof SAA, the national airline, was byfar the largest and most complex.Whilst risk and reward transferredto the DPE, the new owner, on

Strategic intent

Four-pointturnaroundstrategy

Redirecting andreengineering the business

• Improving efficiencies andeffectiveness of the coreoperating divisions

• Realising port-railsynergies

• Improving customer focus• Infrastructure and

maintenance programme

Strategic balance sheetmanagement

• Sell remaining non-coreportfolio and achieve abetter focus on coreoperating divisions

• Appropriate return oninvested capital

• Post-retirement funding• Optimise cash flow

management• Cost of capital• Strategic asset and

liability management• Cost-effective funding

Develop human capital

• Revitalising humanresources by transformingculture and behaviour ofstaff

• Be a preferred andsustainable employer

• Improve talentmanagement andleadership development,transformationmanagement as well asperformance and rewardmanagement

Ensure corporategovernance and riskmanagement

• Ensure that the higheststandards of corporategovernance are adhered to

• Ensure that the Company’srisk management,especially the safety of allits operations, is improved

Focused freighttransport company

Deliveringefficient andcompetitive

services

Enablingeconomic growth

31 March 2006, there were severalsuspensive conditions that had tobe fulfilled by the end of the year.They included the enactment ofthe law setting up SAA as anindependent company,International Air Services Councilapproval, Air Services LicensingCouncil approval, third-partycontractor approval and the listingof SAA as a Schedule 2 public entityin terms of the Public FinanceManagement Act (PFMA).

We are pleased that all theseconditions were fulfilled withinthe agreed time frames, and thedisposal of SAA was recorded inour financial statements on 31 March2007. Whilst SAA was sold forR2 billion, no cash flowed as thesettlement was by means of a

share buy-back of Transnet’s shares.Consequently, there was a R2 billionreduction of Transnet’s share capitalat 31 March 2007. In summary, since2004 Transnet has injected, out of itsown funds, R8,4 billion in cash whichhas now been written off.

The disposals included all or someof the following key features:• The participation of black

investors; • Setting up employee share

ownership;• Due process was followed at

all times; • A competitive public bidding

process was followed except ininstances where there wereexplicit pre-emptive ownershiparrangements or the disposal/sale was to the State;

• All were sold as going concernsand at fair value;

• There were no job losses as aresult of the disposals (in fact,management secured jobguarantees from the buyers);

• Conditions of service of thetransferring employees werelargely unchanged;

• Our employees (especiallymanagement) were prohibitedfrom buying any of thebusinesses being sold inkeeping with our strict conflictof interests policy; and

• The integrity of the processwas never in doubt (none of thedisposals have been subject ofa credible litigation).

During the year, the followingentities were successfully sold:



Entity disposed Buyer Price

Transnet Pension Fund Metropolitan Life (including Kagiso Trust R20 million and R3 million, Administrators (100% – Investments) and Fifth Quadrant respectivelyadministration and respectivelyinvestment services)

Equity Aviation Services Equity Aviation Services (Pty) Ltd R70 million(Pty) Ltd (49%) (plus an employee share scheme)

Transtel Telecom FSN Neotel (Pty) Ltd (formerly the Second R251 million (funded by issueMetro assets Network Operator) of equity of 15% in Neotel (Pty) Ltd

via Transpoint Properties (Pty) Ltd)

VAE Perway (Pty) Ltd (35%) VAE GmbH R30 million

V&A Waterfront Holdings London & Regional Consortium R1,8 billion(Pty) Ltd (26%)

South African Airways (Pty) Ltd Department of Public Enterprises R2 billion (no cash flow – (100%) transaction effected by a share

buyback)

“The completion of the disposalsprogramme has releasedresources – cash, time,management and personnel –to concentrate on our five coreoperating divisions.”


The disposals enabled Transnet toachieve its goal of concentrating itsenergies on owning and operatingrail-freight, ports and pipelines,while securing knowledgeable andvisionary buyers for the non-corebusinesses. This will allow employeesto develop their careers underfocused and growth-orientedownership.

In the first half of the new year,we shall accelerate the disposalsprogramme by selling or transferringthe remaining non-core entities.The remaining programme includesconcluding talks with the preferredbidder on the sale offreightdynamics, our road haulier,and restructuring the fuel andcontainer divisions offreightdynamics.

Subsequent to the year-end, weconcluded an agreement with FirstNational Bank, providing for thesale at fair value of Transnet’shousing lending book to FNB forabout R1,4 billion. In terms of aservice level agreement, FNB willcontinue to provide housing andother loans to Transnet employees.Not only does this release cash, butit will provide employees with abetter and expanded service.

The process of selling arivia.kom (inwhich we own 42% of the issuedshares) to the private sector andoutsourcing our IT services, is at anadvanced stage. The process to sellThe Blue Train to the private sectorhas recently been launched.

Following the transfer of Metrorailto the South African Rail CommuterCorporation (SARCC), the utilitybelonging to the Department ofTransport, plans are in place forthe transfer of Shosholoza Meyl,the long-distance passenger railservice, to the SARCC during thecourse of the year.

South African Express Airways (Pty)Ltd, our wholly-owned airlinesubsidiary, is in the process ofbeing sold to the DPE, marking ourcomplete exit from civil aviation.

In my last review, I referred to ourplans to:• Dispose of non-core properties

(including residential,commercial and vacant land);

• Sell Subco (holder of thepreference share), a special-purpose vehicle used to fundthe purchase of a minorityshareholding in MTN by itsmanagement and blackemployees; and,

• Agree the future of Autopax,our passenger bus subsidiary.

Negotiations are at an advancedstage for the sale of property toServcon, a company wholly ownedby the Department of Housing.A strategy is in place to sell thoseremaining properties we havedeemed non-core to our corporatestrategy and PFMA approval hasbeen received.

On 21 June 2007, Transnet acceptedan offer from Newshelf 664 (Pty)Ltd for the redemption of the “C”

class preference share held byTransnet in Newshelf 664 (Pty) Ltd.The offer amounted to R5,8 billion.The transaction is subject tocertain suspensive conditions.

The delay in moving Autopax out ofour stable was caused by the needto explore various optionsproposed by differentstakeholders, including our labourunions. The DPE has now furnishedus with the mandate to proceedwith the disposal of Autopax.

The completion of the disposalsprogramme has released resources– cash, time, management andpersonnel – to concentrate on ourfive core operating divisions.

As we accelerate the roll-out of ourinvestment programme, findingan appropriate mix of fundingsolutions will become a top priority.This explains why the focus onstrategic management of thebalance sheet has assumed suchsignificance.

More precisely, this will entailreducing the weighted averagecost of capital by reducing theweighted average cost of debt;improving the liquidity position;implementing a robust cash-management system; anddiversifying sources of funding.

REDIRECTING AND REENGINEERINGTHE BUSINESSThis pillar of our strategy coversa range of programmes. I wish tofocus on the businessreengineering, capital investment;and other related initiatives.

Vulindlela Readers of this report will now befamiliar with Vulindlela (a Zulu wordmeaning “opening the way”). This isthe name of our reengineeringeffort.

Now into its second year, thisprogramme is designed to:• Optimise the performance of

Freight Rail’s coal, iron ore andgeneral freight businesses;

• Lift productivity andprofitability levels;

• Re-orient the business towardsits customers;

• Address safety problems;• Cultivate and embed a culture

of planned maintenance;• Improve operational

efficiencies and synergiesbetween our various operatingdivisions;

• Optimise the performance ofthe port system;

• Increase our market share; and• Contain costs and simplify

systems.

One of the major achievements ofthe programme during the yearwas to roll it out across all theoperating divisions. Initially, thefocus had been on our rail freightdivision.

In the year, priority programmescontributed over R2 billion insustainable savings, bringing thecumulative savings to almostR2,5 billion since Vulindlela’sinception in August 2005.

The Vulindlela initiative lies at theheart of Transnet’s turnaroundstrategy and is the core initiativeto redirect and reengineer thebusiness. Vulindlela is alsomaking a strong contribution toTransnet’s other key strategic pillar,namely HR.

Highlights from the rail freightprogrammes:• The Commercial redesign

programme, which focuseson key customer accountmanagement, has achievedgreater stability in priorityfreight flows, consistentlymeeting customer demands.Consequently, delivered volumetempo for the freight flows hasexceeded budgeted volume byover three million tons acrossthese flows;

• Total general freight businessflow (an area with massivegrowth potential, but which hashistorically been neglected)has now been stabilised withsubstantial improvementsforecast for the future.Operational improvements onthe KZN corridor programmehave increased the number oftrains per week by over 25%.Lessons learned on the KZNcorridor are now being applied

at the Cape corridor as part ofthe overall National OperatingCentre (NOC) programme;

• Since October 2006, the IronOre Line programme hasconsistently set new weeklyvolume records, with an all-timerecord of 705 kt/week achievedearly in December 2006. Sincethe beginning of calendar year2007, rail capacity hasexceeded mine supply;

• The Coal Line has sustainedvolume improvements of1,4 mt/week, translating into anannual tempo of 72 million tonsfor the third quarter of the year.Volumes are now constrained bythe mines’ ability to supply coal.This capacity increase has beenaccompanied by a significantlyimproved delivery record – netcancellations have remainedbelow 3%, almost all arisingfrom delivery postponementsby customers. Consequently,trains are being diverted toother areas where they areneeded; and

• The Safety programme hasdelivered savings ofR200 million on the previousyear’s figure through asignificant reduction in majorincidents. The overallprogramme is, however,performing below expectations,which remains an area of majorconcern and focus for us (alsorefer to the Chairman’sStatement on page 17 and theRisk Management report onpage 56).



“During the year Vulindlelacontributed over R2 billionin sustainable savings.”


Highlights from the otherprogrammes: • The Rolling Stock Maintenance

programme has consistentlysustained its productivityimprovements in key focusareas and the roll-out of thisambitious programme’sobjectives is well under way atall of our wagon and locomotivedepots. During the year, wealso completed the integrationof Freight Rail’s maintenanceinto Rail Engineering, a taskthat involved moving more than6 000 employees;

• The Ports Optimisationprogramme has consistentlyachieved new monthly handlingrecords, with 186 000 TEUs forNovember 2006 (significantlyabove the November 2005record of 158 000 TEUs).Improved alignment betweenPort Terminals and NationalPorts Authority has played asignificant role in thisachievement and is centralto making our portsinternationally competitive; and

• The Procurement programmehas produced gains of morethan R500 million this year.The programme continues toconcentrate on improvingoperational alignment, with thefocus on managing drivers ofdemand, volume forecasts andlengthy technical evaluations.

Thus far, Transnet has benefitedfrom Vulindlela not only throughoperational and financial

improvements, but also throughthe mobilisation of people at alllevels of the organisation.

Looking forward to the coming year,Vulindlela has plans to build uponTransnet’s substantially improvedfinancial and operationalperformance, and to address issuesthat might affect the speed atwhich we are achieving our targets.

Capital investment programmeThe business logistics sector hasbeen characterised by rapidinnovation over several decades,driven primarily by advances intransport and in information andcommunication technologies thatenable ever-deepening integrationand collaboration between supplychain partners. The goal of theseinnovations is to improve thespeed, reliability, flexibility andresponsiveness of supply chainswhile at the same time reducingoverall supply chain costs.

In this regard the logistics sectorhas experienced considerablesuccess. The first Annual State ofLogistics Survey (2004) noted thatover the past five decades,developed economies had realiseda reduction in the cost of transportas a percentage of GDP ofapproximately 5% per decade andalmost three times as much ininventory carrying costs.

Behind all this innovation, however,still lies a physical chain thatdetermines what can be moved,where and how. This physical chain is

therefore a key cost component, notonly for companies in terms of theirbottom-line but also for countriesand regions which want to competesuccessfully for the limited andfickle supply of investment anddevelopment capital. As thecustodian of port, pipeline and railinfrastructure in South Africa,Transnet is a central enabler inSouth Africa’s freight logistics and,therefore, a critical factor in SouthAfrica’s growth agenda.

Transnet adopted a corridorapproach as the framework forinfrastructure investment. Thecorridor approach provides supportfor promoting concentration anddensity within the freight systemand ensures alignment between railand port planning and investment.Focusing investment around highdensity corridors creates a highdensity core for the bulk freighttransport system which willcontribute significantly to higherservice quality at lower cost.

More than a year ago, TransnetProjects was set up to implementmajor capital investment projects –that is, those investments worthmore than R300 million. Therationale for setting up a dedicatedunit was to free divisionalexecutives to concentrate on day-to-day operations yet ensure thatthe major projects are rolled outon time, thereby creating capacityfor future growth. At the time, therewere seven major constructionprojects. The unit, with some2 000 employees (in Richards Bay,Durban, Port Elizabeth, Cape Town,

Saldanha and Johannesburg),incorporates Protekon, our formerproject management subsidiary.Over time, Transnet Projects’sscope has been widened to includesmaller projects, special projects(these currently include work onthe ship loader in Saldanha and onthe manganese facility in PortElizabeth) as well as on repairs,maintenance and emergency issues.

The successes of the programmehave ensured that:• We have hastened the pace of

implementing the investmentprogramme;

• Project conceptualisation,planning and design are of thehighest quality;

• There is better co-ordinationof the planning of the majorcapital projects in the Company;

• There is greater focus onenvironmental issuesthroughout the project lifecycle;

• There is adequate transparencyin the projects; and,

• Technological skills andknowledge are being transferredto local and young professionals

On an annual basis, the businessrequirements are revisited and theinvestment plan is updated toensure that we keep track ofchanges in the economy as well ascustomer requirements. Over thenext five years, the Company willbe investing R78,9 billion in thereplacement of assets andexpansion of activities in all the coredivisions. It should be noted that allnew projects are subject to thesuccessful completion of rigorous

feasibility studies which requirereturns which exceed our cost ofcapital and of obtaining necessaryenvironmental authorisations. Theareas of investment and the majorprojects are as follows:

Rail-related projects (R38,9 billion)The major capital investmentprojects in the coal and iron orelines are to ensure sustainabilityand to increase capacity. Newlocomotives (110 dual voltage)have also been included in theplan for the coal line as well asthe proposed acquisition of212 locomotives for the generalfreight business of Freight Rail.This will improve efficiencies andservice levels, specifically in thegeneral freight business.

Port-related projects (R28 billion)To increase capacity at the ports,several new projects are beingundertaken. They include thewidening and deepening of theport entrance in Durban, theconstruction of a new containerterminal at Ngqura, the expansionof the Cape Town containerterminal as well as new equipmentto handle the projected increase involumes at all the major ports.Several projects have also beenincluded to replace existing assetsin the ports which includesequipment and facilities at PortElizabeth, Richards Bay, Durbanand Saldanha.

Pipelines-related projects(R10 billion)The major project is the new multi-product pipeline (NMPP) from

Durban to Gauteng. This project willcreate the capacity required from2010 onwards. Due to thesubstantial investment and the longpayback period of pipeline assets,the affordability of the project isdependent on a suitable tariffstructure. Other projects have alsobeen started to improve theefficiencies of the existingpipelines to ensure that sufficientcapacity is available until thecompletion of the NMPP project.

TBI (Transnet BusinessIntelligence)The TBI programme supportsTransnet’s executive decisionsthrough providing accurate, relevant,consistent and timely information,and also in enhancing the controlenvironment in which we operate.TBI is therefore aimed at:• Aiding in the improvement

of corporate performancemanagement;

• Improving the processes andsystems that enableinformation management; and

• Assisting Transnet to becomea world-class bulk freightorganisation through effectiveuse of technology, world-classsystems and processes.

A major TBI project for the year isthe roll-out of the key performanceindicator (KPI) process throughoutthe business. This project hasidentified the critical KPIs acrossthe business and will measure andreport these against internationalbenchmarks on an automated basis.This will facilitate substantialproductivity and performanceimprovements throughout theCompany.



“Over the next five yearsthe Company will beinvesting R78,9 billionin expansion andreplacement of assets.”


RISK MANAGEMENT ANDCORPORATE GOVERNANCEOur approach to risk managementand corporate governance isstraightforward. We ensurevigilance in dealing with risk andthat all our officers adhere to thehighest standards of corporateethics at all times. Ours is a zero-tolerance approach.

In previous years we adopted andimplemented an extensiveenterprise-wide risk management(ERM) framework that included theestablishment of risk structures toreinforce the framework. Our focusduring the year was on formulating,adopting and implementingCompany-wide safety, health,environmental and quality (SHEQ)risk-management policies togetherwith compliance.

Transnet’s SHEQ risk managementstandards ensure a uniformapproach throughout the Companythat is in line with world-classstandards. This will be measuredagainst the ERM Framework andbest practice with the ultimateobjective of reducing incidents andof minimising repeat mistakes.

While considerable progress hasbeen made in improving safety in allour operations, we are saddened toreport the deaths of 26 employeesduring the year. Our hearts go outto their families and loved ones.One death is too many.

We have reviewed our safetyprocedures and have strengthened

our capacity in problematic areas.Our safety strategy’s objective istwo-fold: first, to increaseaccountability and to holdaccountable those responsible forlapses in judgement; and second,to openly recognise the positivecontribution being made by thoseresponsible for safetyimprovements.

New measures include:• Assessments of the

implementation of correctiveactions or plans that have beenrecommended by the BOI;

• Continuous provision ofassurance on the effectivenessof the safety and risk controlsby the compliance and InternalAudit units; and

• Promoting incident-recallsessions and information-sharing meetings to inculcate aculture of accountability forsafety in all spheres of thebusiness.

We are rolling out an extensivesafety awareness and trainingcampaign. The training coversmanagement and supervisory level.Also, we increased the number ofpermanent safety and risk officialsin the rail regions.

We welcome the strategic supportand guidance provided by the Boardthrough its newly established RiskCommittee (refer to the Chairman’sReview on page 17). During the year,we created a new position in theGroup Executive Committee for theChief Risk Officer. The post

highlights the significance weattach to prudent risk management,especially the safety of our people,assets and customers’ cargo. It isalso designed to direct Company-wide safety initiatives and givesafety the requisite attention byour Executive Committee.

We have appointed a leadinginternational consultancy to assistus in this area especially in our rail-freight operations. This is a criticalfactor in the continuing success ofour business.

Our internal control environmentis continuing to improve, supportedby the decision two years ago tooutsource our internal auditfunction. Ernst & Young, ourinternal auditors, are playing acritical role in assistingmanagement to improve controlsand in investigations of allegationsof fraud, including those from tip-offs received through our toll-free,independently-managed anti-fraudline.

The campaign against fraudcannot be won by strictenforcement of our anti-corruptionpolicies alone. It requires apartnership approach. A corporateneighbourhood watch that includesour suppliers, customers and tradeunions acting in concert againstwrongdoing is needed. Weencourage our suppliers to upholdintegrity at all times and to reportany misconduct by any of ouremployees.

The role and composition of theGroup Executive Committeeremained largely the same duringthe year. Given the significance ofhuman capital in sustaining theturnaround, we agreed to set up anHR sub-committee to deal withhuman resources matters prior totheir tabling in the wider monthlymeeting of the Executive Committee.

In the final quarter of the year,I reorganised the executive teamto ensure that we could continueto build on the successes of theimplementation of the strategy totransform Transnet into a world-class freight transport business.The changes were informed by theneed to maintain our focus onoperations and on implementingthe capital investment programmeefficiently and effectively; the needto build quality relationships withour key clients and customers andwith other stakeholders, especiallyregulators; the need to pay evengreater attention to safety and riskmanagement; and the necessity tohasten the implementation of ourstrategy to revitalise our humanresources.

In consultation with the Board,I made the following changes:• Mr Pradeep Maharaj, the Group

Executive: Strategy andTransformation, assumed anewly-created position ofGroup Executive: HumanResources;

• Mr Vuyo Kahla, the GroupExecutive: Legal and Risk,moved with his legal portfolioto the Group Chief Executive’s

Office, taking on the newposition of Group Executive:Office of the Chief Executiveto assist me in the day-to-dayrunning of the Office and instakeholder relations,especially with key customersand regulators;

• Ms Moira Moses, the GM:Business Reengineering,became Group Executive:Transnet Projects, a newlycreated post that she assumedin March 2007; and

• A new post of Chief Risk Officerwas created. Ms VirginiaDunjwa, the GM: Group RiskManagement, was appointedon 1 June 2007 to the post.

To further drive cohesion, which isimportant for providing integratedservices to our clients, weintegrated the next level ofexecutive leadership – that is, theDivisional Executive Committees.For example, Mr Siyabonga Gama,the CE of Freight Rail, serves on theExecutive Committee of RailEngineering and Mr Richard Vallihu,his counterpart in Rail Engineering,sits on Freight Rail’s Executive.Below this level of leadership, morecross-functional and divisionalteams have been set up to ensurethat Transnet is more customer-oriented and increasingly offeringmore synergistic services to itscustomers.

HUMAN CAPITAL DEVELOPMENTThis is the first full year in whichwe implemented our human capitaldevelopment strategy since itsadoption by our Board. Thestrategy, implemented by the GroupExecutive Committee, is vital tosustaining our turnaround strategyin the years ahead. To recap, itfocuses on the following:• Skills demand planning;• Recruitment and retention;• Capacity building and skills

development;• Performance management;• Talent management; and• Culture.

Following the disposal of non-coreassets, the Company now has48 578 permanent employees and8 543 employees on fixed-termcontracts.

Although the year kicked off withindustrial action over Transnet’sproposed restructuring and thedisposal of its non-core assets (alsorefer to last year’s Annual Reporton www.transnet.net), the overallemployee relations climatesubsequently improved and is nowsignificantly more engaging, positiveand productive. The Companycurrently enjoys a sound relationshipwith its recognised trade unions.

During the year, Transnet madesignificant strides in the effectivemanagement of its humanresources. Achievements include:• The management of talent

through the mapping of futureskills demand, priority technical



“Transnet is strivingtowards a performance-driven culture.”


skills planning and acquisition,leadership development as wellas the priority skills requiredfor the Vulindlela reengineeringproject;

• Laying the foundation forsound performance and rewardprinciples and practices acrossthe business;

• Establishment of soundemployee relations across theorganisation;

• Concluding an agreement withthe unions on the principlesthat guide the implementationof the disposal of Transnet’snon-core assets and facilitatingthe employee aspects of all thedisposals;

• Increasing the efficiency of theHR function through theenablement of HR systems; and

• Focusing on change andtransformation to support theCompany’s four-pointturnaround strategy.

Transnet is striving towards aperformance-driven culture as oneof the outcomes of the turnaroundstrategy. Our remunerationphilosophy is also focused on theestablishment of a performanceand reward culture in the Company.Performance management has beenimplemented for all non-bargainingemployees across the business. Partof the performance managementroll-out included the design ofindividual strategic performanceobjectives (SPOs) that are alignedwith Company objectives. Aperformance incentive scheme wasimplemented for staff in the non-

bargaining unit as well as for those inthe bargaining unit category.

In support of skills development,a strategy to ensure the futureavailability of quality skills is beingimplemented. Various initiativeswere launched to increase theeffectiveness of skills pipelinedevelopment to increase numbersof previously disadvantaged peoplein technical, supervisory andmanagerial levels.

During the year, Transnet initiatedseveral new training programmes toaugment existing initiatives. A feware worth mentioning:• At present, Transnet supports

175 bursars in variousengineering disciplines attertiary institutions. This is anew initiative over and abovethose undertaken by ouroperating divisions;

• We are also supporting some173 students at institutes oftechnology. The plan is toincrease this number to 300;and

• To address future needs ofartisans in our Company, wehave recruited 1 261apprentices who are currentlyundergoing training in differenttrades. This is a five-yearproject.

Apart from addressing Transnet-specific skills challenges, Transnetis also committed to tackling theshortage of skills across thecountry. We are working with otherorganisations in addressing this

challenge. Together with Denel, theState-owned arms manufacturer,we are supporting 50 students whohave been enrolled in the YouthFoundation and Schools Outreachprogramme.

We are also active members of TOPP(training outside public practice) andits Thuthuka bursary programme. TheTransnet TOPP Programme, launchedin 1996, seeks to increase thenumber of chartered accountants,particularly from previously-disadvantaged communities, inSouth Africa. Trainee accountantsget the opportunity for on-the-jobtraining in Transnet and its operatingdivisions, in order for them to qualifysubsequently as charteredaccountants.

The Transnet TOPP programme isalso a sponsor of the South AfricanInstitute of Chartered Accountants(SAICA) Thuthuka bursaryprogramme. At present, Transnet isfunding 20 accounting studentswho are part of this scheme.Transnet’s involvement will continueuntil 2010 by which time Transnetwill have sponsored 50 students. Allthese students will join theTransnet TOPP programme.

We also support the Government-led Joint Initiative on Priority SkillsAcquisition (Jipsa).

On talent management, we haveidentified mission-critical positionsand have developed a talentmanagement policy and a leadershipdevelopment programme.

Change management is acornerstone of any major corporaterestructuring. Emphasis was placedon ensuring that top managers werealigned to Transnet’s turnaroundstrategy, and on cascading this tolower levels of management.

On its first anniversary, theStrategic Leadership Forum (SLF),has lived up to its mission of beingthe centrepiece for high-levelconsultation between theleadership of trade unions and ourExecutive Committee; theparticipation of all its members hassignificantly enriched the quality ofthe engagement; and, it has been agood consultative forum on theimplementation of our strategy.

OPERATING DIVISIONALHIGHLIGHTSIntroductionThis section will highlight some ofthe major achievements of the fiveoperating divisions and identify ourkey challenges. These are dealt within detail in the divisional reports inthe later sections of this AnnualReport.

All our operating divisions aretrending in the right direction withvolume increases driving growth inrevenue. Volume increases andbetter asset utilisation are key toachieving our goal of reducing thetransport-related costs of doingbusiness in our country.

Also, the past year showed thedistance we have travelled inre-orienting our divisions towards

customers – the key stakeholder –and in strengthening the resilience ofall our divisions to withstand criticalchallenges including equipmentfailures and exogenous factors suchas adverse weather conditions.

Freight RailThis operating division, by far ourlargest and most complex, isshowing pleasing progress. Itsperformance during the yearshowed that the focus of our efforts– management, financial, peopleresources and reengineering – arestarting to yield desired results.

Achievements in the year include:• Productivity improvements

enabled the operating marginto increase to 14,8% (2006:14,3%);

• Operating profit increased 8%to R2,2 billion in the year;

• Capital spending for the yeargrew to R7,4 billion (includingcapitalised maintenanceexpenditure of R3,3 billion),compared to the R3,8 billionin the previous year;

• Revenue rose to R14,6 billion(2006: R14,1 billion);

• Finalising the transfer of6 253 maintenance employeesinto Rail Engineering duringthe year; and

• Completing the integration ofmaintenance depots into RailEngineering. This programme,which doubled the size of RailEngineering, yielded positiveresults both in terms ofproductivity improvementsand reliability of rolling stock.

Volumes transported did not meetour expectations. This was due toa range of factors. The coal exportline was severely affected by themines’ inability to produce coalduring the rainy season which wasparticularly severe in the firstquarter of the year. Derailmentsand other safety-related incidentsreduced capacity on the coal andgeneral freight business lines. Thenational strike in the securitysector, which saw a rise in theincidence of cable theft, alsoadversely affected the deliveryof volumes.

Our focus remains on addressingall the factors within our directcontrol, which constrained thegrowth in volumes and revenue inthis division. Improving the safetyof the railway and its operationalefficiency remain key initiatives ofthe Vulindlela programme.

The priority is to increase volumesin the general freight business ofFreight Rail where there aresignificant opportunities.

Additionally, we are investingheavily in maintenance, rollingstock and infrastructure with theobjective of improving our serviceoffering to our customers andtaking advantage of the growthopportunities in the market.

We expect the finalisation of thetransfer and sale of the tworemaining passenger rail services –Shosholoza Meyl and The Blue Train,respectively – to contribute



“All our operating divisionsare trending in the rightdirection.”


towards improving productivityfurther as management can nowfocus on freight.

Rail EngineeringThis division plays a vital supportrole in the turnaround of FreightRail. During the year, the successfulintegration of 6 253 rolling stockmaintenance employees fromFreight Rail into the organisationwas completed. The consolidationof the rail maintenance function is akey step in our plans to create,cultivate and embed a culture ofplanned maintenance in ourbusiness, especially in the railoperations.

Significant progress was made inthis regard during the course ofthe year.

Achievements in the year included:• Revenue increased by 90% to

R7,3 billion;• Operating profit increased by

41% to R1 billion; and• Reliability and availability of

rolling stock on the coal andiron ore lines of Freight Railwere significantly improved.

National Ports AuthorityThis division had another good year,benefiting from strong volumegrowth and economic expansion.This was in spite of the fact thatthe increase in capital investment –from the previous period’sR783 million to R1,1 billion – fellshort of what was planned due, inpart, to difficulties with obtainingenvironmental impact assessment

(EIA) approvals (affecting theexpansion of the Cape TownContainer Terminal) and delays incompleting the first phase of thePort of Ngqura.

The new National Ports Act came ineffect in December 2006 andNational Ports Authority isinvesting time and resources intodealing with this. An extensiveinternal programme to reorganisethe division’s functions to complywith the Act and its Regulations isin place. Considerable progress wasmade in this regard. Post-balancesheet, the Government announcedthe names of the members of theIndependent Ports Regulator underthe chairmanship ofbusinesswoman Ms Gloria Serobe.We look forward to building ahealthy working relationship withthe Regulator.

Achievements in the year included:• Revenue increased by

R669 million which includes anaverage tariff increase of 1,3%and a volume increase of15,5%; and

• Operating profit increased byR409 million or by 10% toR4,5 billion.

Capital spending for the yeargrew to R1 billion compared toR783 million in the previous year.This was considerably behind ourbudgeted plans which were set backby regulatory delays, relating tothe EIA challenges in the plannedexpansion of the container terminalin Cape Town and delays in

completing the first phase of thePort of Ngqura.

The appointment during the yearof the General Manager responsiblefor EIAs within Capital Projectsand the attention we are paying tospeeding up the approvals processare expected to address thesechallenges.

Port TerminalsThis division achieved another setof positive results. During the year,it faced a number of challengesincluding a major equipment failureat Saldanha and a surge incontainer volumes coinciding withextremely bad weather conditions.

Following the resumption ofoperations, a string of loadingperformance records was achieved.

Achievements in the year included:• Revenue increased by 14%

year-on-year;• Operating profit improved year-

on-year by 48%, to R1,4 billion;and

• The containment of costincreases, in percentage terms,has been brought to levels lessthan the growth in revenue,resulting in the operatingmargin increasing from 26%to 33%.

PipelinesThis division is continuing toperform exceedingly well and ispoised for further growth in thefuture especially rolling out the“Bridging Plan” and other initiatives

to address capacity constraintsahead of the commissioning of theplanned new multi-productpipeline.

Its achievements during the yearincluded:• Revenue increased by 15% to

R1,2 billion mainly due tovolume growth;

• Operating profit improved by8% to R672 million; and

• Overall petroleum volumethroughput increased by 8,1%and gas by 14,6%.

For the future, though, it is worthpointing out that its prospects willdepend on the tariff determinationmethodology that has still to beannounced by the regulator. This willdetermine the prospects of successin generating revenue sufficient tocover the cost of capital required forinvestment especially in the NMPPwhich is vital for addressing thecountry’s future petroleum needs.

For the new year, the budgetedtariff of 5,6% was turned down. Thestart of the NMPP is dependent onthe imminent licensing process andappropriate tariff increases thatwill confirm a fair return based onTransnet’s weighted average costof capital being confirmed.

SUPPLY MANAGEMENT ANDBROAD-BASED BLACK ECONOMICEMPOWERMENT (BBBEE)In undertaking the process ofdisposing of our non-core assets, wedrew up a range of criteria that hadto be met by prospective buyers ofthese entities. In addition totechnical expertise and price(backed by guaranteed funding),prospective acquirers were requiredto include in their proposalsparticipation by broad-based blackeconomic empowerment partners asdefined in the Broad-Based BlackEconomic Empowerment Act (andsubsequently amplified in variouscodes of good practice of BEE). Weare pleased to report that all thetransactions we concluded andthose in which Transnet was amajority shareholder – save forthose where there were pre-emptivearrangements with existingshareholders – resulted insignificant BEE participation or wereconcluded with empowered parties.These included:• V&A Waterfront (Pty) Ltd –

more than 25%, including 2%participation by blackemployees of the company;

• TPFA – sold to empowermentplayers Kagiso TrustInvestments, Metropolitan Lifeand Fifth Quadrant; and

• Transtel’s FSN metro assets –sold to Neotel (Pty) Ltd, anempowered telecoms player.

Our biggest and real lever forfacilitating BEE comes not fromthe disposals of non-core assetsbut from our significant purchasingpower.

We have completed the overhaulof our procurement system andprocesses to make them moreefficient, transparent, ethical andfair. We have significantlystreamlined the processes byreplacing tender boards withacquisition councils. We have inplace an internal process that seeksto ensure that we are meeting ourobjectives of conducting fair andtransparent dealings with the public.

On strategic sourcing, we have setinternal targets of savings. Wesaved R552 million during the pastyear and are on track to meetingour target without comprising thequality of our services.

We are also working with the DPEon helping local suppliers tobecome globally competitive aspart of our support for theGovernment’s Accelerated andShared Growth Initiative of SA(AsgiSA).



“37% of operationalexpenditure this year wentto companies owned orcontrolled by blackentrepreneurs.”


All these initiatives shouldconsiderably enhance our abilityto meet the developmentalexpectations of our shareholder asset out in the Shareholder Compact.

During the year, we spentR10,6 billion on a range of servicesin support of our operatingdivisions. Of this, 37% went tocompanies owned or controlled byblack entrepreneurs. Theseamounts relate to operationalexpenditure.

ECONOMIC REGULATIONTransnet operates in a highly-regulated environment. Theregulation covers, amongst others,an economic, safety, health,environmental and labour focus.The challenge posed particularlyby economic regulation requirescontinual interaction with policymakers especially in the light of thedevelopmental needs of our country.

National Ports ActThe commencement of the NationalPorts Act in November 2006ushered in a new regulatory regimefor Transnet’s port divisions,bringing with it a range ofchallenges. The legislation placessignificant responsibilities onNational Ports Authority to ensurethe safe, efficient and effectiveeconomic functioning of thenational ports system. It introducesan independent ports regulatorwhich must oversee theperformance of the National PortsAuthority functions, approve itstariffs and hear complaints andappeals from port users. Transnethas therefore embarked on aprogramme to invest in newsystems and capacities within theNational Ports Authority to performthe additional functions prescribedby the legislation, and to preparefor the wide-ranging portsregulatory powers that the Actcreates. Due to the significance weattach to our interaction withregulators, we have set up a sub-

committee of the Group’s ExecutiveCommittee, to oversee thisinterface. We look forward to aproductive and sound workingrelationship with the newIndependent Ports Regulator. Weare also confident that thecontinuous engagement betweenour Board and the shareholder oversome aspects of the Act will yieldsatisfactory outcomes.

Pipelines – tariffs and theconstruction of the new multi-product pipeline (NMPP)On 31 March 2007, Transnet wasinformed that NERSA, the energyregulator, had declined itsapplication for a 5,6% across theboard increase in tariffs forPipelines. The reasons weresupplied over a month later.

It has to be pointed out that, at thetime of compiling this report,NERSA had yet to approve a formalmethodology for pipeline tariffs,and that its process to do so wasonly expected to be finalised duringthe second half of 2007.

We are, however, engaging with therelevant authorities through agreedchannels to bridge the differencesand ensure that an appropriatetariff regime which will enableTransnet to achieve a fair return(that is, one greater than theweighted average cost of capital)on the planned investment wouldbe in place.

LETTER TO SOCIETY

A compassionate CompanyReforms for the benefit of themembers of the TSDBF and TPFPensioners and their dependantsare important stakeholders in anycompany. At Transnet, we havethree pension funds – namely, theTransnet Second Defined BenefitFund (TSDBF), Transnet PensionFund (TPF) and Transnet RetirementFund (TRF). The first two aredefined-benefit funds, while theTRF is a defined-contribution fund.

I wish to take this opportunityto outline the measures we, as aCompany, have taken with trusteesof these independent funds, toenhance the welfare of theirmembers. I will only deal with thedefined-benefit funds – that is, theTSDBF and the TPF.

These funds are audited byindependent auditors and assessedby independent actuarial firms.They have independent Boards ofTrustees, rules that govern a rangeof matters (including benefits) andinvestment committees that decideeach fund’s investment strategy.

Transnet cannot unilaterally changeany of the pension funds’ rules. Anychanges to the rules require theapproval of the respective Boardsof Trustees; Transnet Ltd’s Board ofDirectors; and the Ministers ofPublic Enterprises and Finance.

TSDBFThis fund, which is a closed (meaningno new members are allowed)pensioner-only fund, has beenrestructured over the past two yearsto resolve a number of problems

including a deficit of approximatelyR5 billion. It is now in a financiallystrong position – in fact, it now hasa surplus of R1,9 billion.

Its assets are now split into twocategories: the first comprisesassets invested to secure thepension payments and the 2%increase for the future. These aremainly made up of a bond portfolioso that asset cash flowsapproximate forecast payments.The second comprised the balanceof the assets that will be investedin a balanced portfolio where anysurpluses will be available fortrustees to consider bonuspayments to pensioners.

One rule has given rise to a greatdeal of concern to pensioners. Thisrelates to the scale of the increasein benefits to which members areentitled each year. This provides fora guaranteed 2% increase each yearregardless of the fund’sperformance or whether the fund’sfinancial health is such that it canafford an increase of greater than2%. This rule has been in existencesince the inception of the TSDBFand arose long before 1990, in theold SATS funds.

Accordingly, together with thetrustees, we have been working onan initiative which will benefit thepensioners of the TSDBF. I ampleased to announce that in January2007 we agreed rule amendmentsthat will provide Trustees with thepower to pay pensioners bonusamounts. These will be in additionto the guaranteed 2% per annumincrease that pensioners alreadyreceive.

This is part of our bid to ensurethat the trustees are able tosupplement the pensioners’ currentpension benefits when the fund hasdelivered strong returns (subject toaffordability).

Ex-gratia bonus for the membersof the TSDBFIn the interim, however, Transnetunderstands fully the difficultiesfaced by those pensioners who arebattling to meet their daily livingexpenses as a result of the effectsof inflation, medical costs, fuelprice increases, etc. Therefore, toassist these pensioners and theirbeneficiaries, Transnet has fundedthe payment of a once-off ex-gratiabonus for the pensioners andbeneficiaries of the TSDBF. Thiswill also be paid to “previouslydisadvantaged widows” (thosespouses of black pensioners whoretired from Transnet between16 December 1974 and 1 April1986 but who died prior to1 November 2000 and whosespouses are not entitled to aspouse’s pension from the Transnetfunds). This bonus is from Transnetand not from the TSDBF. It will costTransnet in the region ofR125 million.

In determining this bonus, theplight of those pensioners withlong service (as these individualsare unlikely to have significantalternative retirement fundingincome), those over the age of65 years (it is unlikely they are ina position to earn supplementaryincome), and, for obvious reasons,those with very low pensions, tookpriority.



“We believe that ourbusiness and thecommunities in whichwe operate areinterdependent.”


This payment is in addition to anybenefit currently being receivedfrom the TSDBF, including the 2%annual guaranteed increase.

TPFThis fund has also been restructuredand is now in a significant surplusposition. We are awaiting theapproval of various ruleamendments and the promulgationof amendments to the TransnetPension Funds Act, 62 of 1990, inorder to implement the plannedreforms including the ability to paypension increases in excess of 2%,subject to affordability.

A new pensions dispensationThe disposal of all the non-corecompanies means that, amongstother things, thousands ofemployees leave our employ witheach disposal to become a newowner’s employees. Ordinarily (andthis is the practice across theglobe), the employees have toparticipate in the retirementprovision arrangements of theirnew employer.

In discussions with us, the unionsrequested that we create anunprecedented regime which wouldlet employees of those entitiestransferring to Government and/orState-owned enterprise typeoperations (eg Metrorail and SAA)to remain members of the Transnetpension funds.

This was a difficult request, butwe agreed to it. Consequently,amendments to the existingTransnet Pension Funds Act werepassed by Parliament and areawaiting the required Presidentialapprovals. In terms of the

amendments, the TPF and TRF willbecome multi-employer funds.

In the case of the defined-benefitfund, the TPF, the differentemployers will be the guarantorsof the sub-fund applicable to theiremployees.

In essence, this means thetransferring employees can stay asmembers of the TPF and TransnetRetirement Fund, though their newemployers will contribute to thefunds and take on all theappropriate and applicableobligations. This option (onlyavailable to cases where the Stateis the employer) means that the newemployer is the responsible party.

Corporate social investmentWe believe that our business andthe communities in which weoperate are interdependent.Accordingly, we cannot beindifferent to the issues facingthe communities around us.

We are also aware that we cannotsolve all of the issues faced bythese important stakeholders.However, the positive impact of ourinterventions can be enhanced by acareful selection of fewer, but notinsignificant, activities.

In last year’s Annual Report, Ireported on the process to re-orient the work of the TransnetFoundation strategically so as tobetter align it with our newcorporate strategy and to maximisethe impact of our philanthropicinterventions. Considerableprogress was made during the yearto redefine the work of theFoundation. Henceforth, it will

focus on three main areas: health,education and the arts. Accordingly,strategies are in place for theFoundation to exit from a range ofprojects that no longer have astrategic fit. These include supportfor the heritage activities, moralregeneration and some provincialcultural activities as well assupport for entrepreneurialdevelopment initiatives.

On the health front, we aredelighted that prospects for thesecond health train or Phelophepa2 are brighter than ever before.There are plans for the second trainto improve the delivery of mobilehealthcare services in primaryhealth (including HIV/Aids), dentalcare, pharmacy and eye care. This isbased on the runaway success ofPhelophepa 1.

In education, the Foundationcontinues to support the Transnet-SAFA School of Excellence – asoccer academy for young giftedfootball-playing learners fromdisadvantaged backgrounds andneighbouring countries. Thefounding partners – Transnet andSAFA, football’s controlling body –are working towards revamping thisinitiative and placing it at thecentre of the preparations for the2010 Soccer World Cup.

The re-orientation also entails areappraisal of the legal structureof the Foundation with a view tofinding a more taxation-efficientform without losing the benefit ofthe wealth of insight, skills,expertise and experience broughtto the Foundation by its varioustrustees.


LOOKING AHEADContainerised freight continues tobe the fastest growing segment ofthe freight transport market bothinternationally and domestically.The increasing penetration ofcontainers into traditional bulk andbreak-bulk cargo has seen theimportance of this segment growsteadily over the past threedecades, and most globalmanufacturing supply chains nowdepend on the efficient andeffective handling and processingof containers. Containerisation hasalso been a significant enabler ofthe global production system, whichis seeing the emergence of newinternational trade corridors.

South Africa is well located inrelation to these new tradecorridors, especially the emergingsouth-south trade routes, and thiscreates significant advantages forlocal manufacturers to participatein global supply chains. To takeadvantage of this highly significantopportunity, Transnet hasdeveloped a strategy for thecontainer market that is aimed atreducing ocean freight costs and atincreasing the country’s maritimeconnectivity with the rest of theworld, particularly Asia.

A key enabler of this strategy is anintegrated and complementary portand rail system working in pursuit ofcommon goals.

The opening of the containerterminal at the port of Ngquraprovides Transnet with the

opportunity to look for aninternational terminal operatoras a strategic partner to operatethis port.

Freight handling infrastructure isa critical determinant of theperformance of the bulk freightsector. In South Africa’s case, overthe past two decades there has beentoo little investment in bulk freighthandling infrastructure.Consequently, the overallperformance of the transport systemexperienced a steady decline. Thefocused implementation ofTransnet’s strategy over the pastthree years, with its emphasis oninfrastructure investment andoperational efficiencies, has seenthis decline starting to reverse.However, there is much to be donefrom an infrastructure perspective tomeet the economy’s short- and long-term demand for freight transport.

During the year, we developed anintegrated port and rail master plan– a development framework for thebackbone of the rail and portfreight system in South Africa. Themaster plan identifies the currentcore system and how this core willdevelop over time to meet futuredemand for freight transport inthe economy efficiently andeffectively. Transnet’s freightdemand model, developed during2006, provides a key input intothis process.

Freight forecasts predict thatdemand will continue to consolidatearound existing freight corridors.

This will facilitate the constructionof a high-density core network thatwill lower the unit costs oftransport. The master plan adopts acorridor approach to infrastructuredevelopment. This focus on the portand rail elements of the bulk freightsupply chain ensures integratedplanning and sequencing ofinvestments. It also supports anoverall capacity provision strategythat aims to maximise theutilisation of existing infrastructureand to minimise infrastructureduplication. The master planprovides the most useful frameworkaround which other participants inthe freight system can align theirplans.

APPRECIATIONThe task of transforming a massiveorganisation with establishedcultures such as Transnet can bedaunting and, at times, seeminsurmountable. It requirescommitment, resilience, anddedication from all stakeholders.Fortunately, at Transnet I haveexperienced all these qualities frommany stakeholders. They are toonumerous to mention them all here.Still, a few, without whose supportwe would never have accomplisheda fraction of the things we set outto do in the beginning, are worthnoting here.

Let me thank my extended Transnetfamily – that is, the Group’sExecutive Committee and theirfamilies. Our employees and theirfamilies play an incredibly


important role. Their contribution isdeeply appreciated.

On behalf of my colleagues in theGroup Executive Committee, let methank our Chairman, Mr FredPhaswana, for his and for the entireBoard’s continuing support for ourtransformation.

I would also like to extend mygratitude to Minister Alec Erwin,MP, for support and that of hisdepartment , notably Ms PortiaMolefe, the Director-General atDPE, for Transnet’s transformation.Throughout his tenure as ourshareholder minister, he has beennothing but a true believer in thetransformation of this Companyinto a world-class freight transportprovider.

Let me also take the opportunity tothank Mr Yunus Carrim, MP, Chairmanof the Portfolio Committee on PublicEnterprises, and the members of thecommittee, for their continuedsupport of our work and forconstantly playing a genuine roleof being independent supporters ofour transformation project.

My most sincere appreciation goesto organised labour and the membersof the SLF – the joint initiativebetween my executive and labour –for their active participation in thework of this forum. Organised labouris one of the key elements that make,and maintain, ours a progressiveeconomy.

Our customers are the only reasonwe are in business. Let me thankeach and every one of them. Wetrust that you are experiencing thepositive impact of theimprovements we are making.Freight is a network business andTransnet’s success depends, to alarge extent, on its networkpartners. For the future, it is ourintention to strengthen ourpartnerships to derive greatervalue from our freight logisticssystem.

Our financiers are, together withinternally generated resources,funders of our business. Weappreciate your support andconstructive engagement.

Finally, our hearts go out to thefamilies of the 26 colleagues wholost their lives on duty during theyear. Our ongoing focus on safeoperations is, in part, designed toensure that their loss is not in vainand that the memory of ourdeceased colleagues isappropriately honoured through asignificant reduction, if notelimination, of fatalities.

CONCLUSIONThe consistent improvement inthe financial and operationalperformance of the Company overthe past three years provides clearevidence of the appropriateness ofthe strategy. During this period wehave seen Transnet transform froma poorly-performing group of

loosely related logistics businessesinto a tightly-focused business witha common vision. It is a reflectionof how far we have come.

Since beginning the journey oftransforming Transnet some threeyears ago, the scale of theCompany’s investment programmehas doubled to today’s R79 billion.

A growing Transnet is an integralpart of the South African economyand an important contributor to the6% plus GDP target envisaged inAsgiSA.

The level of our investmentprogramme tells the story aboutour own business and our viewabout our country’s economy.Simply, we are bullish about theCompany and confident that it isgrowing (for the first time in twodecades) and that it is poised forfurther growth in coming years.


Maria Ramos

Group Chief Executive21 June 2007

“We are bullish aboutthe Company and thatit is growing.”

CHIEF FINANCIAL OFFICER’S REPORT


INTRODUCTIONThe year ended 31 March 2007 wasextremely challenging for theGroup. Nevertheless, it was a verysuccessful year, as evidenced bysustained financial performance,significant progress in the disposalof non-core businesses andinvestments, a stronger balancesheet and meeting all ourshareholder’s expectations asoutlined in the ShareholderCompact (refer to the Report ofDirectors on page 143).

These achievements provide theappropriate platform for theexecution of the capitalexpenditure programme that willenable economic growth andcontribute to AsgiSA’s 6% GDPgrowth target.

As we note the successes of theturnaround strategy we also record

new challenges. This takes the formof regulators that need to approveTransnet’s tariff increases prior toimplementation. The impact ofregulated tariff increases is far-reaching as it impacts capitalinvestment decisions.

GROUP OPERATING PERFORMANCE– CONTINUING OPERATIONSThe positive economic environmentprevailing throughout the year, bothin South Africa and with our majortrading partners, enabled revenueto grow 8% to R28,2 billion (2006:R26,0 billion). This revenue growthwas based on an average priceincrease of 4% coupled withvolume growth approximating 4%.

All operating divisions, with theexception of Freight Rail, grewvolumes strongly. Freight Rail’s lackof volume growth can be attributedto capacity constraints, customer

Chris WellsChief Financial Officer

production problems andderailments. The Group-widereengineering programme,“Vulindlela”, was a priority forFreight Rail where the focus is onoperational efficiency, plannedmaintenance and the purchase ofnew rolling stock. This programmehas made a significant contributionto the operational improvementswhich are evident throughout theGroup.

Many operational challenges werefaced during the year, including thecollapse of the ship loader structurein Saldanha, rough seas experiencedin March 2007, which closed mostports for five days and adverseweather conditions preventing thecoal mines from producing therequired coal volumes. Despitethese issues, Transnet was able tomeet its customers’ requirements,reflecting the continuingtransformation to becoming acustomer-focused business.

Earnings before interest, taxation,depreciation and amortisation(EBITDA) increased by 12% toR11,5 billion (2006: R10,3 billion)enabling the EBITDA margin toincrease to 40,7% (2006: 39,6%)in the current year. This profitincrease is attributable toproductivity improvements andcost-saving initiatives undertaken,resulting in operating expensesincreasing by only 6,3% toR16,7 billion (2006: R15,7 billion).

Included in operating expenses arecertain once-off costs, notablyR125 million for a bonus payout toTransnet Second Defined BenefitFund members, a R100 millionadditional contribution to theTransnet Pension Fund and

R165 million in respect ofrestructuring costs. Adjusting forthese costs, operating expenseswould have increased by only 3,8%,well below the inflation rate.

Depreciation and amortisationof assets for the year increasedby 39,5% to R3 billion (2006:R2,1 billion). This increase is dueto the acceleration of the capitalexpenditure programme andcommencement of depreciation oncapitalised maintenance in termsof IFRS. Consequently the profitfrom operations after depreciationand amortisation reflected amodest increase of 4,1% toR8,4 billion (2006: R8,1 billion)when compared to the prior year.

Fair value adjustments of R2,4 billion(2006: R0,8 billion) enabled profitfrom operations before finance coststo increase by 15% to R10,7 billion(2006: R9,2 billion). The fair valueadjustments derive mainly from theinvestment in a “C” class preferenceshare and an increase in the carryingvalue of investment properties.

The value of the “C” class preferenceshare moves in concert with theMTN share price and increased byR1,7 billion (2006: R500 million) toR5,5 billion (2006: R3,8 billion).The increase in the value ofinvestment properties amounted toR490 million (2006: R372 million).

Finance costs remained at similarlevels to those of the prior year.However, the Group’s weightedaverage cost of debt (WACD) of11,9% is very high due to legacydebt. It is anticipated that theWACD will decrease significantly asnew cost-effective borrowings areraised.

The taxation charge for the yearamounted to R1,9 billion (2006:R2,0 billion), comprising a currenttaxation charge of R0,9 billion and adeferred taxation charge of R1billion. The effective taxation ratefor the Group is 22,93% (2006:31,31%) for the year, which is belowthe corporate taxation rate of 29%due primarily to fair value gainswhich are exempt from taxation.

Sensitivity analysis R million

Revenue (+1%) 301Personnel costs (+1%) 111Energy costs (+US$1 in oil price) 14Material (+1%) 20

This table illustrates the impactof a 1% movement in variouselements and the consequentimpacts and should be read inconjunction with the graphicentitled ‘Operating costs’. As canbe seen from the table above,revenue growth is the key driverfor attaining improved results.In this regard volume growth isspecifically targeted.

GROUP OPERATING PERFORMANCE– DISCONTINUED OPERATIONSIn the prior year, the followingbusinesses were classified as non-current assets held-for-sale andreported as discontinuedoperations, having met the criteriaas set out in IFRS 5 Non-currentAssets Held-for-Sale andDiscontinued Operations:• South African Airways (Pty) Ltd

(SAA);• V&A Waterfront Holdings (Pty)

Ltd;• Autopax Passenger Services

(Pty) Ltd;• freightdynamics;


Revenue contribution per operating division

15%

8%

51%

Freight RailNational Ports AuthorityPort Terminals

22%

4%

PipelinesOther

Operating costs*

22%

15%

52%

Personnel and benefitsEnergyOperating leases

7%

Material costsMaintenance costs

2%

* continuing businessesOther

2%

CHIEF FINANCIAL OFFICER’S REPORT continued

• Viamax (Pty) Ltd;• Equity Aviation (Pty) Ltd;• VAE Perway (Pty) Ltd; and• Freight Dynamics Guard Risk.

In addition to the above entities thefollowing businesses/investmentswere classified as non-currentassets held-for-sale or reportedas discontinued operations in thecurrent year:• Transnet Housing Loan Book;• Shosholoza Meyl;• Transnet Pension Fund

Administrators;• Luxrail (Blue Train);• Transtel DEVI assets; and• arivia.kom.

These entities reported revenue ofR22 billion (2006: R22,2 billion) anda net loss of R349 million (2006:R47 million).

The Group profit from discontinuedoperations of R1,1 billion (2006:R102 million) comprises anoperating loss of R349 million(2006: R47 million) and a profiton disposal of operations ofR1,4 billion (2006: R149 million).The most significant disposalsduring the year were South AfricanAirways (SAA) and the Group’sinterest in V&A WaterfrontHoldings (Pty) Ltd (V&A). Theinvestment in V&A was sold forR7 billion, of which Transnet’s 26%share of the proceeds amounted toR1,8 billion, and a Group profit onsale of R711 million wasrecognised.

The major business of the Groupthat has been classified as adiscontinued operation is SAA.Transnet and the South AfricanGovernment concluded a sale

agreement for the sale of SAA tothe Department of PublicEnterprises with risk and rewardsof ownership passing to theGovernment on 31 March 2006.The effective date of sale has beenrecorded as 31 March 2007, beingthe date on which all suspensiveconditions were fulfilled. TheR2 billion sale price of SAA wasdischarged by means of a sharebuy-back and the net impactthereof on the Group was areduction in capital and reserves ofR1 billion. It should be noted thatTransnet had recapitalised SAA byinjecting R8,4 billion in cash overthe last three years, all of which hasbeen written-off.

South African AirwaysRevenue increased by 6,8% toR20,6 billion, which was negativelyimpacted by low-cost carriers andlower passenger yields. Revenueincludes an amount of R683 million(2006: R1 billion), relating to therelease of prescribed ticket salesto income, and fuel leviesamounting to R2,4 billion (2006:R2,2 billion).

Net operating expenses excludingdepreciation and amortisation,increased by 12,8% toR20,5 billion, mainly as a result ofthe increase in fuel prices whichshowed an effective increase of14,5% over the prior year. Aircraftlease costs increased by 32,5% toR2,5 billion (2006: R1,9 billion) as aresult of sale and leasebacktransactions entered into in March2006 for two Airbus A340-600aircraft as well as the introductionof the MD 11 cargo aircraft in thepast year. An operating loss for theyear of R603 million has been


recorded (2006: profit ofR425 million).

GROUP FINANCIAL POSITION

TAXATIONThe deferred taxation liabilityincreased from R52 million toR1,7 billion in the year due toincreased temporary differencesas a result of the capitalexpenditure programme and post-retirement benefit obligations,together with taxation on theincreased carrying value ofproperty, plant and equipmentrecorded at fair values.

The Minister of Finance, in hisbudget speech on 21 February2007, noted that the regimerelating to the taxationdepreciation of fixed andmoveable assets will be reviewedto ensure a greater degree ofconsistency. Noting further thatone way of reducing the cost ofdoing business in South Africa is toimprove the efficiency of transportnetworks and ports, it wasproposed to reduce the taxationdepreciation periods for new rollingstock from 14 years to five years,and for new quay walls and otherport facilities to qualify fordeductions over 20 years ratherthan non-depreciable for taxationpurposes.

The effective date of theseproposals, and the exact impact onTransnet, will be confirmed whenthe legislation is drafted, but theproposals will have a positiveimpact on Transnet’s cost offunding and funding requirementsof its capital expenditureprogramme.

EBITDA contribution

14%

9%

34%

Freight RailNational Ports AuthorityPort Terminals

43%

Pipelines

BORROWINGSWhilst interest-bearing borrowingsincreased by R3,3 billion in the year,cash and cash equivalentsincreased by R1,8 billion, resultingin a net borrowing increase ofR1,5 billion. The increase inborrowings was used to fundcapital expenditure, and in thisregard long-term loan facilitiesof R3,3 billion were raised at verycompetitive rates to fund theacquisition of locomotives andcranes. R1 billion had been drawndown on these facilities at31 March 2007.

The gearing ratio at year-end of39% (2006: 46%) improvedsignificantly in the current year andreflects the strength of Transnet’sbalance sheet. The Group is well-positioned to fund the capitalexpenditure programme cost-effectively.

The Group has adequate cash onhand and banking facilities to meetits commitments. At the end of theyear Transnet had unusedborrowing facilities of R54 billion,of which R5 billion is availableimmediately as short-term loans.

A detailed analysis of all theGroup’s borrowings and relatedexposures is contained in notes25 and 30 and annexure A to theannual financial statements.

In line with the strategic objectiveof lowering the cost of doingbusiness in South Africa, Transnetcontinues to play a pivotal role inboth the local and internationalmoney and capital markets.

Subsequent to the year-endTransnet appointed an arranger andlead joint-managers to assist withthe implementation of a domesticmedium-term note programmeunder which domestic market bondsand commercial paper issuanceswill take place. In addition, a multi-sourced facility with theappropriate export credit agenciesis being implemented to facilitatecost-effective and flexible fundingfor imported equipment.

PENSION AND POST-RETIREMENTBENEFITSThe Group provides various post-retirement benefits to its activeand retired employees, includingpension, post-retirement healthand other benefits.

The two defined-benefit funds,namely the Transnet SecondDefined Benefit Fund (TSDBF) andthe Transnet Pension Fund (TPF),are fully funded with actuarialsurpluses in excess of R1,9 billionand R1,1 billion respectively, whichreflects a decrease in the post-retirement benefit obligation forthese funds of R1,6 billioncompared to the prior year. Transnethas not recognised any portion ofthe surplus on these funds as thefund rules at present do not allowfor the distribution of a surplus.

An ex-gratia once-off bonuspayment of R125 million for allmembers of the TSDBF has beenprovided for by Transnet. Thepayment basis of the bonus willinclude those pensioners with longservice (as these individuals areunlikely to have significantalternative retirement funding

income), pensioners that werepreviously disadvantaged by therules of the fund and thoseindividuals who receive relativelylow pensions despite long service.

Transnet, together with theTrustees of the TSDBF, has moveda significant portion of the fundassets from equities to cash andbonds. The fund’s asset allocation isnow more appropriate for a closedfund of this nature. Furthermore, acash flow matching programme willbe implemented during 2007.

The labour unions requested thatmembers of Transnet’s pensionfunds could remain as members ifthe entity that employs themremains a State-owned entity(principally to accommodate SAAand Metrorail employees at thisstage). To accommodate thisrequirement and certain otheramendments, the Transnet PensionFund Act was revised through aParliamentary process and isawaiting presidential signature.Accordingly, the TPF and theTransnet Retirement Fund willbecome multi-employer funds.

Dealing with the TPF specifically,separate “sub-funds” boards oftrustees will be formed. Theutilisation of any surplus willtherefore need to be dealt withseparately by each sub-fund andthe trustees and Transnet will makeannouncements in this regard indue course.

The post-retirement benefitobligation for the medical fundshas decreased by R330 million toR2,1 billion (2006: R2,4 billion).


“Gearing improved to 39%and cash generated fromoperations improved by20% to R13,5 billion.”


CASH FLOWSCash generated from operationsbefore working capital changesincreased by 20% to R13,5 billion(2006: R11,2 billion) and net cashgenerated from operating activitiesincreased by 51% to R8,9 billion.These significant increases reflectthe Group’s ability to generatestrong cash flows.

Cash interest cover and CFROI(cash flow return on investment –a reflection of the ‘real’ returnsearned above inflation) are keymeasures for the Group as theyreflect respectively the ability toservice borrowings and to earn anappropriate return on investment.Cash interest cover increased to5,4 times (2006: 4,5 times) andCFROI increased to 6,8% (2006:5,8%). These measures demonstratethat Transnet is comfortably able toservice its borrowings and isachieving returns in excess of itsweighted average cost of capital.

CAPITAL EXPENDITUREIn light of historic under-spending,as can be seen from the graphicabove entitled ‘Historic capitalexpenditure’, capital expenditureplans for the continuing businessesover the next five years amount toR79 billion (2006: R65 billion) andrelate mainly to the upgrade andexpansion of rail, port facilitiesand pipeline infrastructure.

Projects that allow for capacityexpansion included in the five-yearcapital expenditure plan include:• Ore line expansion to 47 million

tons;• Coal line expansion to 86 million

tons;

• New locomotives for the coal line;• New locomotives for general

freight;• New container terminal at

Ngqura;• Expansion at the Port of Durban;• Expansion at the Port of Cape

Town; and• New multi-product pipeline.

Capital commitments will be financedby the cash from operations, togetherwith borrowings.

Significant progress has beenachieved in the roll-out of the capitalexpenditure plan in the current year,with contracts for new locomotivesand port equipment being concludedwith suppliers. An amount ofR11,7 billion (2006: R6,6 billion) hasbeen invested to expand andmaintain operations in the currentyear, in line with the budget. Theexpected spend for the forthcomingyear is estimated at R18 billion.

A new challenge that faces the capitalexpenditure programme is the adventof regulation. It is imperative thatappropriate tariff increases areapproved to enable a fair return onthe Company’s invested capital.

GUARANTEESThe Group has issued guaranteesto third parties amounting toR5,7 billion, the most significant ofwhich relates to promissory notesamounting to R2,2 billion in respectof the Newshelf 697 structure. Thesole shareholder in Transnet Ltd,namely the South AfricanGovernment, has guaranteed theborrowings of the Group to theextent of R19 billion (2006:R19 billion). Assets pledged


in support of secured loans andcapitalised finance leases amountto R1,4 billion (2006: R1 billion).

As mentioned above, Transnetconcluded a share sale agreementfor the sale of SAA to the State.As part of this agreement, Transnetprovided certain last resortguarantee facilities to SAA thatexpired on 31 March 2007. However,due to legislative delays inobtaining a suitable Governmentguarantee, the existing facility ofR1,5 billion will remain in place fora short period until the replacementguarantee is procured.

TREASURY RISK MANAGEMENTThe Group’s policies with respectto the hedging of foreign currencyexposures and the management offinancial risk were approved by theBoard, and will continue to beenhanced to ensure risks areidentified and managed in astructured and controlled manner.

As mentioned above, the Groupentered into supplier agreementsfor the purchase of locomotives andport equipment. These contractswere concluded with foreignsuppliers and consequently exposedthe Group to foreign exchange risk.In accordance with the Board-approved financial management riskframework, the Group entered intoderivatives to hedge this exposure.The Group consequently adoptedfair value hedge accounting in thecurrent year as allowed by IAS 39Financial Instruments: Recognitionand Measurement.

Further details regarding theseexposures are contained in note

25

20

15

10

5

02008

Forecast capital expenditure2009 2010 2011 2012

17,9

21,5

17,5

12,7

9,4

R bi

llion

Capital expenditure for 2008

24%

19%

48%

Freight RailRail EngineeringNational Ports Authority

4%

Port TerminalsPipelines

5%

12

10

8

6

4

2

000

Historic capital expenditure*

1,6 2,

0

3,2

4,0

3,8

3,7

6,6

11,7

01 02 03 04 05 06 07

* Excluding SAA

R bi

llion

14 and annexure A to the annualfinancial statements.

GROUP ACCOUNTING POLICIESThe annual financial statements havebeen prepared in accordance withIFRS, the Companies Act 1973 (asamended), the Public Audit Act 2004and the Public Finance ManagementAct 1999 (as amended). The resultsare presented in terms of IFRS andinterpretations that are effective forthe year ended 31 March 2007.

Accounting policies used in theannual financial statements arecompliant with IFRS and consistentwith those used in the annualfinancial statements for 31 March2006, except as listed below.

The financial effects of the changesin accounting policies have not hada significant impact on the financial

statements. Policy changes werein response to the followingamendments to InternationalAccounting Standards and circularsissued by SAICA and relate to:• IAS 21 The effects of changes

in foreign exchange rates – Netinvestment in a foreignoperation;

• IAS 39 Financial Instruments:Recognition and measurement– Fair value option;

• IAS 39 Financial Instruments:Recognition and measurementand IFRS 4 Financial guaranteecontracts;

• IFRIC 4 Determining whether anarrangement contains a lease;

• Circular 1/2006 Disclosures inrelation to deferred taxation; and

• Circular 9/2006 Transactionsgiving rise to adjustments torevenue/purchases.

RESTATEMENTS OF THE ANNUALFINANCIAL STATEMENTSIn the current year the Groupreviewed its application of IAS 40Investment Property, whichrequires the fair value of qualifyingproperty to be established anddisclosed in the financialstatements. In addition, theapplication of the initialrecognition requirements of IAS 12in relation to revaluation of assetsthat are not subject to taxationallowances was amended.

Further details are contained innotes 10 and 37 to the annualfinancial statements.

The changes in accounting policiesand other restatements had thefollowing impact on the financialstatements:


31 March 1 April

2006 2005R million R million

INCOME STATEMENTProfit for the year attributable to equity holder, as previously reported 4 539Net effect of restatements 359

IFRIC 4 adjustments 20Increase in investment properties 339

Restated profit attributable toequity holder 4 898

BALANCE SHEETEquity attributable to shareholder, as previously reported 27 593 21 018Net effect of restatements 1 820 1 487

IFRIC 4 adjustments 16 (4)Increase in investment properties 796 457Deferred taxation adjustments 1 008 1 034

Restated equity attributable to shareholder 29 413 22 505

“Significant progress hasbeen achieved in the roll-out of the capitalexpenditure plan in thecurrent year”


TRANSNET BUSINESSINTELLIGENCETransnet Business Intelligence (TBI)is a programme designed to createcohesive information managementwithin the organisation through theeffective use of data that iscredible, accurate and timely. Theprogramme has, over the past year,made great strides in improvingthe credibility, relevance andtimeliness of financial information.

TBI comprises a suite of projectsfocusing on critical areas throughoutthe Company, including financialreporting, risk measurement,operational productivitymeasurement, human resources andthe internal control environment.

A key objective of TBI is theimplementation and monitoring ofkey performance indicators (KPIs)throughout Transnet.

POST-BALANCE SHEET EVENTSThe following significant issuesoccurred between 31 March 2007and 21 June 2007:

Sale of “C” class preference sharein Newshelf 664 (Pty) LtdOn 21 June 2007 Transnet Ltdaccepted an offer of R5,8 billionfrom Newshelf 664 (Pty) Ltd,subject to certain conditions, forthe redemption of the “C” classpreference share held by TransnetLtd in Newshelf 664 (Pty) Ltd.

In note 14 of the financialstatements, the investment in the“C” class preference share inNewshelf 664 (Pty) Ltd was valuedat R5,5 billion at 31 March 2007(2006: R3,8 billion).

The fair value adjustment derivedfrom the investment in the “C” classpreference share for the yearamounted to R1,7 billion (2006:

R500 million). In addition, anamount of R300 million will berecognised in the income statementin the year ending 31 March 2008.

Claim by Umthunzi TelecomsConsortium (Pty) LtdOn 11 April 2007 the UmthunziTelecoms Consortium (Pty) Ltdinstituted legal action in theTransvaal Provincial Division of theHigh Court against the Governmentof the Republic of South Africa asthe First Defendant and TransnetLtd as Second Defendant claimingthe delivery of certain MTN Groupshares. The claim amounts toapproximately R2,2 billion. TheDirectors have sought and obtainedadvice from attorneys and counseland, based on that advice, believethere is no legal basis for the claimand that it is therefore unlikely tosucceed.

Sale of Viamax (Pty) LtdTransnet Ltd has concluded anagreement in principle to sellViamax Holdings (Pty) Ltd, its fleetmanagement and leasing business,to Bidvest Group Ltd, forapproximately R1 billion.

Sale of Transnet Housing Loan BookThe Transnet Housing Loan Bookhas been sold to First National Bankwith effect from 1 April 2007 forits fair value of approximatelyR1,4 billion, subject to certainsuspensive conditions.

Sale of Transnet Pension FundAdministratorsA sale agreement was concludedbetween Transnet Ltd, FifthQuadrant Actuaries andConsultants (Pty) Ltd andMetropolitan Retirement FundAdministrators (Pty) Ltd for thesale of the Transnet Pension FundAdministrator’s business for anamount of R23 million with effectfrom 1 April 2007.

Sale of VAE Perway (Pty) LtdA sale agreement was concludedbetween Transnet and VAE GmbHfor the sale of VAE Perway (Pty) Ltdfor R30 million. The transaction hasan effective date of 16 April 2007.

freightdynamicsTransnet has entered intonegotiations for the sale offreightdynamics. The sale of thisbusiness will be subject to theprovisions of section 197 of theLabour Relations Act and isexpected to be completed by30 June 2007.

Transtel DEVITransnet Ltd is involved innegotiations for the disposal of itsTranstel DEVI Assets.

PROSPECTSThe focus areas for the financialstrategy of the Group in theforthcoming year are as follows:• Strong control environment

with reliable, timely andrelevant information;

• Improved operational efficiencyby focusing on key performancedrivers/indicators andimproved margins;

• Drive volume growth and ensuretotal revenue increase exceedscost increases;

• Capital investment programmeroll-out and ensuring the returnsachieved exceed WACC; and

• Implementation of the fundingplan that adequately addressesthe borrowing requirements ofthe Group and reduces theweighted average cost of debt.


Chris Wells

Chief Financial Officer21 June 2007


VALUE ADDED STATEMENTfor the year ended 31 March 2007

2007 2006Restated

Continuing operations R million % R million %

Revenue 28 214 26 034Cost of materials and services (7 905) (6 909)

Net operating expenses excluding depreciation and amortisation (16 726) (15 733)Excluding – Post-retirement benefit obligation costs 973 1 054

– Personnel costs 7 848 7 770

Value added by operations 20 309 89 19 125 93Other income 2 610 11 1 524 7

– Finance income 187 262– Income from associates 2 33– Dividend income 36 85– Sale of interest in businesses – 329– Fair value adjustments 2 385 815

Value added/created 22 919 100 20 649 100

Applied as follows:

Employees 8 821 39 8 824 43

– Personnel costs 7 848 7 770– Post-retirement benefit obligation costs 973 1 054

Providers of capital 2 624 11 2 668 13

– Finance costs 2 624 2 668

Government 941 4 1 813 9

– South African taxation 934 1 806– Foreign taxation 7 7

Re-invested to maintain and expand operations 10 533 46 7 344 35

– Depreciation, amortisation and impairment 3 250 2 287– Deferred taxation 961 229– Profit 6 322 4 828

Value apportioned 22 919 100 20 649 100

Value added 2007

46%

39%

11%4%

Employees

Reinvested to maintain andexpand operations

Providers of capitalGovernment

Value added 2006

35% 43%

13%9%

EmployeesProviders of capitalGovernmentReinvestment to maintain andexpand operations

Africa’s busiest port – 60% of South Africa’s container traffic goes through the port of Durban

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CORPORATE GOVERNANCECorporate governance report 50

Risk management report 56

CORPORATE GOVERNANCE

INTRODUCTION2007 marks the end of the three-year term in office of the TransnetBoard of Directors, reckoned from27 August 2004.

One of the notable areas ofstrength of this Board has been theindividual Directors’ ability to cometogether and work as a focusedteam in tackling the substantiveissues concerning the Company.Apart from the work carried out inthe various Committees of theBoard as detailed below, ad hocBoard Committees are constitutedwhenever a need arises for theBoard to take lead in areasaffecting the Company’s strategicfocus. Where necessary, the Boardconstitutes an ad hoc committee toprovide direction to the Company’smanagement.

A new Board Committee, the GroupRisk Committee, was also formedduring the year. At its constitutivemeeting in October 2004, the Boarddecided to assign risk managementoversight to the Group AuditCommittee. With the Enterprise-Wide Risk Management Frameworkof the Company having beenapproved and increased attentionrequired for embedding a riskmanagement culture, it wasconsidered an appropriate time toconstitute this new committeeunder the Chairmanship of Mr PeterJoubert, an independent non-executive Director to assist theBoard in exercising its riskmanagement oversight role.

Progress achieved in providing anintegrated risk management focusto the Company is set out more fully

under the risk management sectioncontained on pages 56 to 59.

From the outset, the Board adoptedthe approach that promotion ofprinciples of sound corporategovernance extends beyond somemechanistic tick box exercises tothe substantive advancement ofunimpeachable corporate conduct.

Transnet complies with King II in allaspects applicable to it, and King IIis the foundation for governance inthe Group.

During the year, an exercise wascarried out to measure TransnetLtd’s corporate governanceperformance against the King IICode on Corporate Governance(King II) and the Deutsche BankModel (Beyond the Numbers,Corporate Governance in SouthAfrica). (The DB Model)

The DB model provides an analysisof corporate governanceperformance using factorsconsidered to have the highestpotential to influence share pricemovement and other internationalcorporate governance bestpractices. As Transnet is not a listedCompany, some of the questionsincluded in the DB model do not,however, apply to Transnet. This wasparticularly evident in questionsrelating to shareholder treatmenton issues such as ordinary sharevoting rights, repricing of shareoptions and barriers to change incontrol. The exercise revealed that,in many respects, Transnet’scorporate governance performancecomplies with standards stricterthan those set out in King II.

BOARD OF DIRECTORSTransnet has a unitary Boardstructure with Directors assumingcomplete responsibility forproviding effective control andstrategic direction to the Company.

The Company has separate anddistinct roles and responsibilitiesfor the Chairman of the Board andthe Group Chief Executive. TheChairman is an independent non-executive Director.

The Company’s Articles ofAssociation provide that theCompany’s Board shall consist of nomore than 18 Directors. The Boardcurrently comprises 14 Directors andis satisfied that its size is sufficientto enable it to fully and effectivelylead the organisation and fulfil theobligations of the Board’s mandate.

The definition of independentDirector used in this CorporateGovernance Report is based oninternational best practiceespoused in the DB Model, using aset of 15 measures.

The majority of the Board membersare independent Directors. Apartfrom the fact that the majority ofthe Directors meet the set of15 measures defining independence,the Board places a great premium oneach Director’s ability to thinkindependently and strategically andthereby add value to the Board’sdeliberations. This is one of the vitalattributes taken into account by theCorporate Governance andNominations Committee whenmaking recommendations for theappointment of Directors to theBoard.


All the current Directors of theCompany were appointed by theShareholder for a three-year term.A total of 10 of the 12 non-executive Directors were appointedon 27 August 2004. This was anextra-ordinary measure occasionedby circumstances that thenprevailed.

During the year, Ms Nunu Ntshingilaand Dr Norman Haste, OBE, wereappointed as independent non-executive Directors.

The basis for the appointment ofthese two Directors included,amongst others, the need for theBoard to infuse new Directors toallow for proper transition andsuccession planning.

In respect of each year of theDirectors’ three-year term, theDirectors have to submitthemselves for re-election at theCompany’s Annual General Meeting.

Six Board meetings took placeduring the year. This includes twotwo-day strategic workshops heldin August 2006 and February 2007.As part of its ongoing induction andfirst-hand experience of theCompany’s operations, the Boardconducts site visits to theCompany’s operations across thecountry and holds some of itsmeetings at these operationalsites. The operations visited duringthe year included the ports of PortElizabeth and Ngqura.

As has become the custom, theBoard, once again conducted anevaluation of its performance

facilitated by independentadvisors. These evaluations providean invaluable opportunity for theBoard to reflect on its processesand structures and help determinewhether the Board and Committeesadequately fulfil their mandates.The evaluation exercise alsoincluded an evaluation of the rolesof the Chairman, the Group ChiefExecutive and the Group CompanySecretary. The evaluationculminates in the determination ofareas of improvement and actionplans to drive such improvement.The Board evaluation reportprepared by the independentadvisors, together with actionplans, if any, is submitted to theshareholder.

The Board holds some meetings in-Committee, to allow non-executiveDirectors to raise any issues notappropriately raised in full Boardsessions in a session closed toexecutives.

The Board has an approved mandatewhich sets out its authority, powersof delegation and terms ofreference. The Board directs andcontrols the business of the Group.With the exception of the mattersset out in the Board’s writtenresolution, as matters reserved forBoard decision, the Board hasdelegated the responsibility to runthe operations of the Company tothe Group Chief Executive.

The Board reserved mattersinclude, amongst others, thefollowing:• Approval of strategy, business

plans, annual budgets, the

borrowing strategy and anysubsequent material changes instrategic direction;

• Recommendation for theshareholder’s approval of thecommencement or cessation ofa significant business activity;

• Appointment, removal orreplacement of the externalauditors of the Company;

• Approval of the rules andamendments to pension andprovident funds having amaterial effect on the actuarialliabilities of those funds; and

• Appointment and removal ofthe Group Company Secretary.

The Group Chief Executive isauthorised to sub-delegate thepowers delegated to her by theBoard as she thinks fit. The GroupChief Executive submitscomprehensive reports to theBoard at its meetings. Further,written Board updates arecirculated to the Directors in themonths where there are no Boardmeetings scheduled.

The Transnet Board’s performancehas been exemplary with highlevels of participation by all Boardmembers as evidenced by theBoard evaluation reportssubmitted to the shareholder.During the year, two Directorsmissed more than 25% ofmeetings, as indicated in the Boardattendance schedule below.Despite such absences occasionedmostly by unforeseencircumstances, these Directorsdiligently participated in the workof the Board and its Committeesthroughout the year.


“Transnet complies withKing II in all aspectsapplicable to it”

CORPORATE GOVERNANCE continued

Schedule of attendance at Board of Directors meetings26 Apr 30 Jun 29 Aug 6 Oct 28 Nov 13 Feb

Director 2006 2006 2006 2006 2006 2006

Mr FTM Phaswana (Chairman)Ms M RamosDr I Abedian A AProf GK EveringhamMs NBP GcabaDr ND Haste, OBE *Dr SE Jonah, KBE A A A AMr PG JoubertMs NNA MatyumzaMr BT Ngcuka AMr S NicolaouMs N R Ntshingila *Ms KC Ramon AMr CF Wells

= PresentA = Apologies* = Not a member

The Board has delegatedresponsibility for providingassurance on the quality, integrityand reliability of the Group’s riskmanagement to this committee.The duties of this committeeinclude:• Reviewing and assessing the

integrity of the risk controlprocesses and systems;

• Ensuring that the risk policiesare managed effectively and inaccordance with the EnterpriseRisk Management Frameworkapproved by the Board fromtime to time;

• Ensuring effectivecommunication with theInternal Auditors, the externalauditors, the Group AuditCommittee, the Board,management, regulators andsupervisors on riskmanagement; and

• Contributing to a climate ofdiscipline and control which willreduce the opportunity for fraudand other operational losses.

Major risks across the business aswell as the embedding of the riskmanagement culture are standingitems on the committee’s agenda.

In line with the Board’s commitmentto ensure that the Group operatesin a safe environment, safety,health, environment and quality(SHEQ) and risk management formpart of the committee’s mandate. Inthe event of a fatality in any of theoperating divisions, the Chief


BOARD COMMITTEESThe Board established fourCommittees to assist it indischarging its responsibilities,namely the Group Risk, Group Audit,Group Remuneration, andCorporate Governance andNominations Committees.

Whilst the Board has delegatedcertain of its functions to theseCommittees, it remains fullyaccountable for the properdischarging of the responsibilities.Minutes of committee meetings areincluded in the Board papersdistributed prior to Board meetingsand the Chairmen of the respectivecommittees table their reports atBoard meetings.

Only non-executive Directors aremembers of the committees of theBoard. The Group Chief Executiveand other members of executivemanagement whose presence isrequired for such committees’effective performance of theirresponsibilities are invited to bein attendance at committeemeetings.

Group Risk CommitteeMembers: Mr PG Joubert(Chairman), Dr I Abedian,Ms NNA Matyumza,Prof GK Everingham andMs NR Ntshingila.

The committee held its constitutivemeeting on 30 January 2007.

Executives concerned and otherrelevant executives of suchdivisions appear before the GroupRisk Committee and the Board toexplain the cause and preventativemeasures going forward.

The committee’s work programmefor the year includes holdingcommittee meetings at theoperating divisions to highlight theCompany’s focus on riskmanagement issues and observethe level of implementation of therisk management standards andculture at the operations.

Schedule of attendance at GroupRisk Committee meetings:1 January 2007 – 31 March 2007

30 JanDirector 2007

Mr PG Joubert (Chairman)Dr I AbedianProf GK EveringhamMs NNA MatyumzaMs NR Ntshingila A

= PresentA = Apologies

Group Audit CommitteeMembers: Prof GK Everingham(Chairman), Dr I Abedian,Mr PG Joubert, Ms KC Ramon andMr S Nicolaou

All the members of the AuditCommittee are non-executiveDirectors and are financiallyliterate. With the constitution ofthe Group Risk Committee,Ms Matyumza resigned from theAudit Committee with effect from

January 2007 and became amember of the Group RiskCommittee.

The Audit Committee addssignificant value to the Board andthe Group by carrying out, amongstothers, the following functions:• Assisting the Board in

discharging its duties relatingto the safeguarding of assetsand the evaluation of internalcontrol frameworks within theGroup;

• Reviewing and assessing theintegrity and effectiveness ofthe accounting, financial,compliance and other controlsystems;

• Considering the internal andexternal audit process and theaccounting principles andpolicies;

• Strengthening theindependence of internal andexternal audit functions toensure their effectiveness; and

• Ensuring compliance with allapplicable legal, regulatory andaccounting requirements.

Audit subcommittees have beenformed in all the major operatingdivisions of the Company. TheGroup Audit Committee considersreports from these subcommitteesat its meetings. The minutes of thesubcommittee meetings as well asmatters that have not beenresolved within set timeframes bythe subcommittees are escalatedto the Group Audit Committee.

All non-audit services provided bythe external auditors and feespayable in that regard are pre-approved by the Audit Committee.The Group Audit Committee meetswith the external and InternalAuditors without the presence ofmanagement to discuss issues thatthey consider prudent to raise inthe absence of management.

The Audit Committee is satisfiedthat the independence of theinternal and external auditorshas not been compromised inany way.


Schedule of attendance at Audit Committee meetings19 Apr 14 Jun 22 Nov 2 Feb

Director 2006 2006 2006 2007

Prof GK Everingham (Chairman)Dr I Abedian A AMs NNA Matyumza *Mr S Nicolaou A AMr PG JoubertMs KC Ramon A


“The Board established fourCommittees to assist it indischarging its responsibilities,namely the Group Risk, GroupAudit, Group Remuneration,and Corporate Governanceand Nominations Committees”

CORPORATE GOVERNANCE continued

Remuneration CommitteeMembers: Dr SE Jonah, KBE(Chairman), Ms NBP Gcaba (DeputyChairman), Dr I Abedian,Mr PG Joubert and Ms NR Ntshingila

The purpose of the RemunerationCommittee is, amongst others to,carry out the following functions:• Ensure that competitive reward

strategies and programmes arein place to facilitate therecruitment, motivation andretention of high performancestaff at all levels in support ofrealising corporate objectivesand to safeguard shareholderinterests;

• Review the design andmanagement of salarystructures, policies andincentive schemes and to ensurethat they motivate sustainedhigh performance and are linkedto corporate performance;

• Develop and implement a policyof remuneration philosophy fordisclosure to enable areasonable assessment ofreward practices andgovernance processes to bemade by stakeholders; and

• Propose the level of non-executive Directors’ fees to theBoard which, in its turn, makesrecommendations to theshareholder.

All the members of theRemuneration Committee are non-executive Directors. Ms Gcaba wasappointed as the Deputy Chairmanand Ms Ntshingila as a committeemember with effect from 30 June2006.

The Remuneration Committeeapproved the remunerationphilosophy of the Company, whichincludes long- and short-termperformance incentive schemes.

Further details on remunerationinformation are disclosed in theReport of Directors on pages 146to 150.

Corporate Governance andNominations CommitteeMembers: Mr FTM Phaswana(Chairman), Ms NBP Gcaba,Prof GK Everingham andMr BT Ngcuka

The role of the committee is toensure that the Board’s


Schedule of attendance at Corporate Governance and NominationsCommittee meetings

11 Apr 28 Jun 15 Sep 27 Nov 29 Jan 29 MarDirector 2006 2006 2006 2006 2006 2007

Mr F TM Phaswana (Chairman)Prof GK EveringhamMs NBP Gcaba A

Mr BT Ngcuka A A

= PresentA = Apologies

composition and structure enablesit to fulfil its obligations as set outin the Board mandate and toadvance and maintain the Group’scorporate governance policies.

The committee is also responsiblefor reviewing the succession plansof the Board collectively, theexecutive Directors and membersof the Group Executive Committee.

The committee ensures that theperformance of the Board andcommittees is assessed annuallyand determines the form of theevaluation process and action plansarising out of the evaluation report.

Schedule of attendance at Remuneration Committee meetings13 Apr 3 Jul 7 Dec 26 Feb

Director 2006 2006 2006 2007

Dr SE Jonah (Chairman) ADr I AbedianMr PG JoubertMs NB P Ngcaba *Ms NR Ntshingila * A A


SHAREHOLDER COMPACTOne of the highlights of the year,from a corporate governanceperspective, was the signing of theShareholder Compact betweenTransnet and Government.

The Shareholder Compact confirmsTransnet’s mandate, the strategicobjectives to be attained as well asthe key performance areas (KPAs)and key performance indicators(KPIs) to measure the Company’sperformance during the period ofthe Shareholder Compact. The KPAsinclude capital and financialefficiency as well as infrastructureinvestments. The targets set aremeasured quarterly and arereported quarterly to theshareholder.

CODE OF ETHICSThe Board members and employeesof Transnet are subject to Codes ofEthics for Directors and employees,respectively.

The Transnet Code of Ethics providesthe basic principles that must guideall employees and other stakeholdersin conducting business with theCompany.

It is a requirement that all Transnetemployees sign an acknowledgementthat they have read and understoodthe contents of the code and thatcontravention of the basic standardsset therein results in disciplinaryaction, including dismissal. Bysigning the code, employees furtherconsent to Transnet publishing anycontravention and alerting anyperson who employs them, on their

departure from Transnet, of suchcontravention.

During the year, the InternalAuditors were tasked to follow upand verify that the code has beensigned by all employees. Ininstances where there has beenfailure to comply, reports havebeen submitted to the GroupExecutive Committee as well as tothe Group Audit Committee.

The Company also put in place anindependently operated whistle-blowing mechanism. Reports onmatters that have been reportedthrough this mechanism and theprogress of investigations in respectof such matters are reported to theGroup Audit Committee by theInternal Auditors. The Tip-OffsAnonymous number used by theCompany for reporting of incidencesof fraud and corruption is0800 003 056 or email [email protected].

Once the calls are received,investigations are carried out by theCompany’s Internal Auditors.Depending on the nature ofallegations, some matters havebeen reported to the appropriatelaw enforcement agencies, includingthe South African Police Service andthe Directorate of SpecialOperations (otherwise known as theScorpions). During the year,disciplinary processes wereinstituted against 58 employees inthe operating divisions, 36 of thesematters have been finalised. Of the36 finalised disciplinary actions,15 employees have been dismissed,


one demoted, 12 received finalwritten warnings and eightemployees resigned beforefinalising any disciplinary action. Inaddition to the disciplinary actiontaken, Transnet laid criminal chargesagainst 25 employees, 22 of thesecases are currently pending in thecourts and three were found guilty.Furthermore, civil action wasbrought against three employeesand the matters are currentlypending finalisation.

Further, fraud awareness trainingis under way throughout theorganisation to assist in curbingincidents of fraud and encouragethe use of the fraud reporting line.

Ernst & Young, Transnet InternalAuditors, recently issued theirreport on the corporate governanceaudit and have, amongst others,indicated that “Agendas, minutesand mandates were reviewed andwere found to be consistent andeffective … The Board GovernanceStructures are consistent with therequirements of the PFMA and KingII and with an organisation of thissize and complexity of Transnet.Based on the audit thesegovernance structures areoperating effectively.” On themanagement governancestructures, the Internal Auditorshave gone as far as stating, that“The Internal Control Committeerepresents leading practice.”

“One of the highlights ofthe year, from a corporategovernance perspective,was the signing of theShareholder Compactbetween the Transnetand Government”

RISK MANAGEMENT REPORT


implementation. This is to ensurethat• Transnet’s risk universe is

properly surveyed;• The Board and management have

an integrated view and focus onthe risks facing Transnet and onthe management or mitigationthereof;

• The roles and responsibilitiesof various risk managementstructures are continuallyreviewed to ensure that theyremain relevant to Transnet’srisk management strategicobjectives; and

• There is risk managementperformance measurement andappropriate controls.

All risks are managed in astructured and systematic way,which is aligned to the ERMFramework and corporategovernance responsibilities. ERMis being embedded in the Group’sbusiness systems and processes,to ensure that responses to risksremain current and dynamic.

Through the application of the ERMFramework Transnet:• Aligns risk appetite and

strategy: Transnet managementconsiders the Group’s andoperating divisions’ riskappetite, as determined by theBoard, in evaluating strategicalternatives, setting relatedobjectives, and developingmechanisms to manage relatedrisks.

• Enhances risk responsedecisions: Management gains

the rigour to identify andselect, amongst alternatives,risk responses – such as riskavoidance, reduction, sharing,and acceptance.

• Reduces operational surprisesand losses: Transnet gainsenhanced capability to identifypotential events and establishresponses, reducing surprisesand associated costs or losses.

• Identifies and managesmultiple and cross-enterpriserisks: Transnet identifies risksand facilitates effective andintegrated responses to theinterrelated impacts.

• Seizes opportunities: Byconsidering a full range ofpotential events, Transnetmanagement is positioned toidentify and proactively realiseor capitalise on opportunities.

• Improves deployment ofcapital: Obtaining robust riskinformation allows Transnet’smanagement to assess overallcapital needs effectively and toenhance capital allocationdecisions.

• Ensures compliance with laws,rules and standards: Transnetmanagement ensures theeffective reporting of risks andcompliance with laws, rules andstandards and seeks to avoiddamage to Transnet’sreputation and associatedconsequences.

• Increases probability ofachieving objectives:Management ensures thatTransnet’s performance andprofitability targets are

INTRODUCTIONThe overall risk managementphilosophy of Transnet is that it isnot in the business of proprietaryrisk taking and will therefore, to theextent possible, avoid undue risks.However, given the nature ofTransnet’s business and its majorcapital investment programme, it isnot always possible to avoid risk.Transnet accepts, reduces ortransfers risks (particularlyfinancial risks) provided that theresidual exposure accepted iswithin the risk appetite or tolerancelimits of Transnet as determined bythe Board of Directors from time totime. Integral to Transnet’s riskmanagement philosophy andprocess, is the Enterprise-wide RiskManagement (ERM) Frameworkwhich was developed and approvedby the Transnet Board of Directors.

ERM FRAMEWORKThe ERM Framework follows aholistic approach to risk andopportunity and details a strategyto achieve the overall Groupobjectives. It is aligned to King II,the committee of SponsoringOrganisations of the TreadwayCommission (COSO), the PFMA andother regulatory requirements. Alloperating divisions are subject tothe framework.

The ERM Framework informs therisk management process ofTransnet in respect of, amongstothers, the risk managementprocedures and guidelines, thedetermination of risk managementstandards, corporate planning and

responsibility of the Group RiskManagement Committee, asubcommittee of the GroupExecutive Committee (Group Exco).The Group Risk ManagementCommittee is chaired by the GroupChief Executive to emphasise theprimacy we give to managing ourrisk management responsibilities.It comprises the Group ChiefFinancial Officer, the Group ChiefOperating Officer, the GroupExecutive: Office of the Group ChiefExecutive, the Group Executive:Human Resources, the GroupTreasurer and the Group Chief RiskOfficer as its members. The GeneralManagers: Group Risk Managementand Group Compliance are inattendance.

Group Internal Control CommitteeThe Group Internal ControlCommittee (ICC), a sub-committeeof the Transnet ExecutiveCommittee and Audit Committee,has been operating effectivelyduring the year. This committee,chaired by the Group ChiefFinancial Officer, together with theChief Operating Officer and theGroup Executive: Office of the ChiefExecutive, monitors theeffectiveness of the financialcontrols and facilitates theenhancement of Transnet’s controlenvironment. The committeeensures that the internal auditfunction is aligned to the strategicgoals of Transnet. In doing this ithas developed a five-year internalaudit maturity model, with theultimate vision of achieving aworld-class internal control

environment. Significant work hasalready been done in understandingthe components of the model andaligning the approach to internalaudit with the longer-term vision;this is evident from theintroduction of internal controlmonitoring and control selfassessment.

The committee’s mainresponsibilities are:• Acting as a channel and

governance committee withinTransnet for all internal auditreports, forensic reports andrelated issues and otherreports relating to financialimprovement projectsundertaken to enhanceTransnet’s control environment;

• Ensuring that satisfactoryprogress is being made toaddress control-related issues.In particular, the committeeconsiders the adequacy ofmanagement’s action plans toaddress control weaknesses,the speed at which actions arebeing implemented, whether ornot the appropriate results arebeing achieved and whether ornot sufficient resources arebeing allocated to achieve therequired results;

• Guiding and directing InternalAudit through the developmentof the one-year operational andthree-year strategic internalaudit plans which cover allareas of focus includinginternal audit, forensic as welland enhancement activities;and


achieved and prevents loss ofresources. Controls and riskinterventions are chosen onthe basis of increasing thelikelihood that business will fulfilits intentions to stakeholders.

• Protects the Company’sresources: Management isfocused on the protection ofthe scarce resources of theCompany, be it capital, physicalassets, human assets, marketshare, etc.

The ERM Framework is a dynamicprocess which is reviewed on anannual basis by the Board ofDirectors or as the circumstancesdictate, in consultation with therelevant stakeholders.

RISK GOVERNANCE STRUCTURESRisk management is, as set out inKing II, COSO and the PFMA,ultimately the responsibility ofthe Board of Directors of Transnet.Previously, the Group AuditCommittee had responsibility forthe Board’s governance oversightof risk management in the Group.However, when the Board approvedthe ERM Framework it reviewed theefficacy of this governancearrangement and determined thatthere be a separate BoardCommittee focusing on riskmanagement, hence the newlyestablished Group Risk Committee(Group RiskCo) chaired by non-executive Director, Mr Peter Joubert.

Group Risk Management CommitteeThe strategic operational focus onrisk management is the

“All risks are managed in astructured and systematicapproach”

RISK MANAGEMENT REPORT continued


• Reviewing the outcome ofPFMA compliance assessmentsand managing compliance withthe Act.

The committee’s vision of achievinga world-class internal controlenvironment is firmly entrenchedin Transnet’s four-point turnaroundstrategy.

Asset and Liability ManagementCommitteeThere is an Asset and LiabilityManagement Committee (ALCO)chaired by the Group Chief FinancialOfficer, whose members include theGroup Chief Executive, the GroupChief Operating Officer, the GroupTreasurer, the Group Executive:Human Resources, the GroupExecutive: Office of the Group ChiefExecutive, the Group Chief RiskOfficer, the General Manager: GroupFinancial Planning and the GeneralManager: Group Tax.

The purpose of ALCO is to ensurethat Transnet’s approach to assetand liability management is alwaysgoverned by prudence, theregulatory environment in which theCompany operates, global leadingpractice and the competitive spacewithin which the Group operates.ALCO is responsible for managingfinancial risk. To ensure this, ALCO:• Utilises a comprehensive risk

management process thatfacilitates the effectiveidentification, measurement,monitoring and control ofinterest rate, foreign exchange,price and liquidity risk

exposures within prudentlevels; and

• Ensures that appropriate assetand liability managementframeworks, policies andprocedures are implementedin the Group.

Group Risk Management structureThe Group Risk function, which isheaded by the Group Chief RiskOfficer and which includes,amongst others, the GeneralManager: Group Risk Management,the General Manager: GroupCompliance, the Manager: GroupOperational Risks, the Manager:Group SHEQ Risks, the StrategicSpecialist: Risk Financing and theHead: Group Security, is tasked withthe day-to-day risk managementand corporate governanceresponsibilities.

Divisional Risk ManagementCommitteesOperating divisions’ RiskManagement Committees arechaired by the relevant ChiefExecutives or Chief Executivedesignates. The operating divisions’Risk Management Committees areresponsible for, amongst others,the following:• Formulating, promoting and

reviewing the operatingdivisions’ ERM and complianceobjectives, strategies andpolicies, in alignment withGroup directives andmonitoring the ERM processat strategic, management andoperational levels; and

• Ensuring the implementation of

risk management structures andprocesses in line with the ERMand compliance frameworks,and to ensure optimaleffectiveness of the ERM andcompliance processes in theoperating divisions, includingthe prudent management of theoperating divisions’ assets andliabilities.

THE ERM PROCESSA procedure manual was developedand approved by the Group RiskManagement Committee to assistin ensuring the successfulimplementation and embeddingof ERM.

The ERM methodology of Transnetconsists of the following interrelatedcomponents, which are derived fromERM global leading practice:• Risk governance;• Risk identification;• Risk assessment;• Risk control and response;• Risk monitoring and reporting;

and• Performance measurement.

MAJOR RISKSAs described above, a riskidentification process isundertaken by each operatingdivision and functional area on anannual basis to assess the risksthat will impact on the business.Some of the major risks currentlyfacing the Group include thefollowing:• Regulatory risks;• Risks relating to efficient asset

performance;

COMPLIANCEDuring the previous year a GroupCompliance function wasestablished to assist managementto discharge their responsibilitiesto comply with applicable laws,rules and standards. The Board ofDirectors approved the GroupCompliance Policy and thecompliance high-level standards,included in the Group compliancemanual, which encapsulateTransnet’s conceptual frameworkfor compliance. Group Compliancehas implemented a risk-basedapproach to compliance riskmanagement which is intended toencourage the development of afully effective compliance functionover a three-year planning period.The compliance risk methodologyand risk models are aligned to theERM Framework and processes.

RISK-BASED INTERNAL AUDITTransnet Internal Audit is anintegral part of Transnet’s ERMfocus. A key focus of Internal Auditis to assist management inenhancing Transnet’s internalcontrol environment.

Internal Audit’s assurance coverage,focuses on key business risks thatare critical to the achievement ofthe corporate strategy; majorinitiatives required to implementthe four-point turnaround strategy;core controls to achieve key controlobjectives from a financial,compliance and operationalperspective. This includes the PFMAand compliance with laws, rules andstandards.

CONCLUSIONThe ERM strategies, processes,frameworks and initiatives whichunderpin the Risk Management Planhave been set out above. Asindicated, in accordance with KingII, COSO and the PFMA, the Board ofDirectors has ultimateresponsibility for ensuring thatthere is a robust risk managementprocess at Transnet. In executingthis responsibility, the Board ofDirectors continuously reviews theRisk Management Plan to ensurethat it helps Transnet meet itsstrategic objectives. Significantprogress has been made inembedding a culture of riskmanagement throughout Transnetover the last year.


• Human resources risks;• Risk that current infrastructure

capacity does not meetcustomer demands, taking intoaccount the country’s andglobal economic growth;

• Under-investment in rollingstock;

• The risk of events that resultin business interruption;

• Operational safety risk; and• The risk of capital projects not

delivered on time.

BUSINESS CONTINUITYMANAGEMENTOne of the past year’s RiskManagement Policy (RMP) keyfocus areas was disaster recoveryand business continuitymanagement (BCM). This willcontinue for the next year. The aimis to extend the concept of crisismanagement and emergencyplanning into a full BCM system tobe applied throughout Transnet.Working together with theoperating divisions, Transnet is, aspart of its operational riskmanagement focus, applyingappropriate plans for each of therisk categories for use by the linefunction areas. An enterprise risk-based Operational RiskManagement Policy, as well as aBCM Policy is applied across theoperating divisions and Group.These policies are in accordancewith global leading practices. TheCompany also has a global leadingpractice BCM high level standard,which provides guidance to theoperating divisions inimplementing the BCM Policy.

“Significant progress hasbeen made in embeddinga culture of riskmanagement throughoutTransnet over the last year”

Transnet Freight Rail has consistently set new records in coal delivery to the privately-owned Richards Bay coal terminal, thanks to the Vulindlela reengineering initiative

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SUSTAINABILITYSustainability report 60

SUSTAINABILITY REPORT

TOWARDS MATURITY OF THETRANSNET SUSTAINABILITYPLATFORMEmbedding a culture of valuemeasurementTransnet’s sustainabilityperformance is inextricably linkedto its corporate governancepractices. It is for this reason thatthe Corporate Governance andNominations Committee of theTransnet Board of Directors hasstrategic oversight of thesustainability focus of the Company.

Building on the foundation of theprevious year, the SustainabilityPlatform project focused oncreating the Transnet ValueMeasurement Framework (TVMF) tostrengthen the accountability chainand to measure Transnet-specificsustainability performance acrossthe business. This frameworkrecognises the Global ReportingInitiative (GRI) SustainabilityReporting Guidelines as a globalbenchmark and also takes intoaccount the unique South Africanbusiness landscape.

Transnet is accountable to itsstakeholders for sustainabledecision-making processes, whichintegrate principles of economicprosperity, social equity and

environmental quality. To deliveron this commitment, the Companyis embedding a culture ofsustainability by integratingsustainability management intoits strategies, accounting andreporting processes as well as inits internal and external assurancepractices.

TRANSNET VALUE MEASUREMENTFRAMEWORKThe seven principles of the TVMFshown in the model above werecarefully selected to cover theinterests of Transnet’s diversestakeholders. It also provides theoutline for this sustainabilityreport and the operational reports.


Achievingreturns greater

than cost ofcapital

Developingworld-class

infrastructure

Creating aworkplace where

our people canexcel

Caring for thecommunities where

we operate

Managing ourenvironmentresponsibly

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ENGAGING OURSTAKEHOLDERS

FOR MUTUALBENEFIT

ABOUT THIS REPORT

This Annual Report presentsTransnet’s operating and financialperformance for the year ending31 March 2007. It integratessustainability outcomes ofinterest to Transnet'sstakeholders as part of the mainreport. These include broadeconomic, social andenvironmental performance andoverarching corporate governanceoutcomes.

Whilst this sustainability reportpresents a consolidated review ofvalue created for the Company’s

stakeholders, the operationalreports (pages 80 to 137) coverthe operation-specificmanagement and performancedisclosures for the mainoperating divisions forming partof the Company’s continuingoperations.

The report is aligned to the GlobalReporting Initiative (GRI) G3Sustainability ReportingGuidelines, which outline theprinciples for defining reportcontent and ensure the quality ofreported information.

ASSURING SOUND ACCOUNTABILITY AND GOVERNANCERaising the bar on corporate governanceAs part of the Company’s strategic objective of raising the bar on corporate governance, the Board adopted a holistic focuson the sustainability of the Company, its accountability and governance. This focus is consistent with the requirements ofbenchmarks such as the King II Code on Corporate Governance and the Global Reporting Initiative (GRI G3).

Our holistic approach to Board accountability

Board governance Executive management Strategy and Ethical cultureGiving an overview of Defining the purpose transformation Sharing the values by the responsibilities and highlighting the Highlighting Transnet’s which Transnet operates and fiduciary duties of challenges in managing actions to transform the disclosing our actions the Board of Directors Transnet in a proper business into a focused to manage the fraud risk in directing and and lawful way. freight transport to which the Company iscontrolling the Company company. exposed.in the pursuit of itsstrategic objectives.

Enterprise risk Compliance Legal management Assurance managementmanagement management Giving the context of Giving assurance through Disclosing Transnet’s Acknowledging the laws, Transnet’s legal status disclosure of Transnet’s risk management frame- rules and standards as a State-owned internal and external control work which informs the governing our actions enterprise in South Africa. environment.Company’s risk and disclosing Transnet’smanagement process compliance to these andand its implementation. to the requirements of

the Company’s regulators and supervisors.

Business intelligence Sustainability Platform Communication and Stakeholder engagementSharing information Reporting progress on reporting Acknowledging the on Transnet’s business Transnet’s holistic Communicating Transnet’s Transnet stakeholders andprocesses for collecting approach designed to performance in a clear disclosing the Company’sand analysing business integrate sustainability and transparent way. actions to seek mutually information in a credible issues into the way the beneficial relationships.and consistent way. business operates.

Governance disclosure relating to the above framework is addressed in the Chairman’s statement, the Group ChiefExecutive’s review, the Corporate Governance report and the Report of Directors that form part of this Annual Report.


‘Transnet is integratingsustainability managementinto its strategies . . .”

SUSTAINABILITY REPORT continued


TRANSNET VALUE MEASUREMENT FRAMEWORK Key stakeholders Interface with Transnet and

Sustainability principles The principal issues aimed at creating identified as material Shareholder and other State-owned Regulators and otherstakeholder value concerns to stakeholders enterprises Governmental agencies

Assuring sound Board governance Transnet’s shareholder, the Government Compliance with all applicableaccountability Executive management of the Republic of South Africa, as laws, rules and standards andand governance Strategy and transformation represented by the Minister of Public adherence to the requirements

Ethical culture Enterprises (the shareholder minister) of regulators and supervisors Enterprise risk requires the Board and management of are central to Transnet’s broader management the Company to carry out their duties and corporate governance and Compliance management responsibilities in a manner that is enterprise risk management.Legal management consistent with principles of sound Assurance management corporate governance and a vigilant risk Guided by the Group Compliance Business intelligence management focus. Manual and Policy, and high level Sustainability platform standards, Transnet seeks to Communication The Corporate Plan that the Company maintain a constructive and Reporting provides to the shareholder minister transparent working relationship

prior to the commencement of each with all regulators and otherfinancial year includes a risk Government agencies.management plan and fraud prevention

plan for the Company. To enrich such interactions withthe Regulators, a Public Policy

There are regular meetings with the and Regulation Unit has been shareholder minister and officials of established in the Office of thehis department which are mutually Group Chief Executive.enriching. The shareholder ministeris always available to engage withthe Transnet Board at its strategy sessions and attends the Company’sAnnual General Meeting. Further, theChairman and the GCE are members ofthe shareholder minister’s Chairmen and Chief Executive Officers’ forum which provides interaction on strategicissues identified by the shareholderminister and respective Chairmen and CEOs of State-owned enterprises.

There are other forums of the shareholder minister’s department that cover issues such as finance, risk and governance in which executives of Transnet participate.

Through the Shareholder Compact the Company and the shareholder minister agree performance targets. In addition there are quarterly, interim and annual reports of the Company’s performance.

Achieving returns Financial management The shareholder seeks an appropriate In the Company’s everydaygreater than the Marketplace and return on investment. Key performance financial, marketplace andcost of capital customer management indicators (KPIs) have been agreed upon supply management

Operations management with the shareholder and are contained compliance to amongst others, Supply management in the Shareholder Compact, Target International Financial and BBBEE values are set for each KPI and are Reporting Standards;

contained in the annual Corporate Plans. the Broad-Based Black Economic Empowerment Act;the Competition Act; andthe Auditing Profession Actare central.

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ENGAGING OUR STAKEHOLDERS FOR MUTUAL BENEFITDelivering on our commitments in a transparent, inclusive and accountable wayStakeholder engagement is central to the success of Transnet’s four-point turnaround strategy. The Companycontinuously seeks to engage in collaborative working relationships with its diverse stakeholders. The GroupExecutive: Office of the Group Chief Executive is responsible for coordinating engagements with key stakeholders.During the year, an enterprise-wide process was launched through the Sustainability Platform to better understandthe needs and expectations of Transnet's stakeholders. The Company developed the Transnet Stakeholder Matrixwhich maps its stakeholders and the issues material to them. It also guides the way forward in creating valuealigned to stakeholder needs and expectations:


Transnet’s response to their needs

Employees and The public, financiers Customers Suppliers labour unions and media Communities

Continued growth of the To suppliers BBBEE Transnet’s people and The South African public, The business has an Company’s market is governance, ethical conduct organised labour need to Transnet’s financiers, bond impact on the inextricably linked to the and contract management be assured of the proper holders, credit rating communities where itneeds and expectations are key concerns. governance and ethical agencies and the media operates. Transnetof its customers. To them, transformation and are particularly focused strives to demonstrateimproved service delivery Transnet communicates management of the on the Company’s ability to communities thatwill be the key measure of with them on these issues business. to deliver on its the Company values the success of Transnet’s through, amongst others: commitments as set out in principles of.turnaround strategy. • The media; Value-adding communication its turnaround strategy. accountability.

• Transnet Acquisition tools used in the Company’sEngaging customers to Council communication; daily interaction with its Transnet interacts with Transnet seeksbetter understand their • BEE forums; people and their these stakeholders through: engagement with suchunique needs takes • Publications; representatives include: • Press conferences; communities through,various forms, which include: • Site visits; and • Strategic Leadership • One-on-one interviews; amongst others:• Meetings of the Group • Stakeholder engagement Forum meetings; • Roadshows; and • Partnerships; and

Chief Executive and other meetings. • Internet/intranet; • Media breakfasts. • Awarenessrelevant Group Executive • Newsletters; and campaigns.Committee members with • Letters from the GCE.various customers;

• Operating divisions CEO roadshows;

• Customer satisfactionfeedback/reports;

• Engagement meetings; and• Fact sheets, pamphlets

and newsletters.

Through improving its The Company’s suppliers Solid financial performance, Transnet’s brand value is Mutually beneficialoperational efficiency expect procurement a stable marketplace and greatly determined by co-existence dependsTransnet seeks to provide systems that are ethical, operational efficiency public perception. The key on the Company’sits customers with a efficient and transparent. create the foundation for to its success therefore business reliable service and to At Transnet preferential a workplace where the lies firmly in its ability sustainability. Transnetestablish value creating procurement is a business Company balances to achieve sound financial will engage in growth opportunities for imperative. performance and reward. returns, secure its market enterprise its suppliers. It does this share, enhance operational development initiatives,through sustainable efficiency improvements as part of its adoptionpartnerships, memoranda and strengthen its supply of the BBBEE Codes ofof understanding and chain management. Good Practices.leveraging economiesof scale.

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TRANSNET VALUE MEASUREMENT FRAMEWORK Key stakeholders Interface with Transnet and

Sustainability principles The principal issues aimed at creating identified as material Shareholder and other State-ownedstakeholder value concerns to stakeholders enterprises Regulators and supervisors

Developing world-class Rail, port and pipeline Infrastructure investment is one of In its infrastructure infrastructure infrastructure the KPIs identified in the Shareholder development, Transnet

Information and Compact. This translates into greater strives to comply with communication emphasis on the implementation of a host of legislation andtechnology Transnet’s major capital investment regulatory enhancements

programmes and maintenance plan. inclusive of environmental Dashboard reports on progress with laws and other legislation.major projects are presented to the shareholder minister at the Chairmen’s and CEOs’ forum meetings.

Creating a workplace People management In line with the shareholder’s policies, Transnet’s human capital where our people Change, transformation Transnet seeks to create an organisation management is governedcan excel and culture that is reflective of the diversity of by compliance to amongst

Employment equity South African society and which others, the OccupationalSkills development contributes to maximising the human Health and Safety Act; theTalent management resources potential of its people. Compensation for Performance and reward Transnet shares and continues to Occupational Injuries andProductivity and participate in the shareholder’s Diseases Act; the Basic efficiency developmental initiatives such as the Conditions of EmploymentHuman resource Joint Initiative on Priority Skills Act; the Skills Developmentenablement Acquisition (Jipsa) and the Act; the Employment EquityEmployee relations Accelerated and Shared Growth Act; the Labour Relations

Employee wellness and Initiative for South Africa (AsgiSA). Act; and the Promotion ofHIV/Aids Equality and Prevention ofEmployee safety Transnet regards the acquisition Unfair Discrimination Act.

and retention of critical skills as central to the success of the turnaround strategy.

Caring for the Corporate social Apart from Transnet’s corporate social In its interactions withcommunities where investment investment projects carried out society, Transnet seekswe operate Community impact and through the Transnet Foundation and compliance with relevant

public health and safety the operating divisions, the Shareholder laws including theCompact outlines the process to be Broad-Based Blackfollowed by the parties in setting Economic Empowerment joint non-commercial developmental Act; and the Preventionsocio-economic objectives for of Illegal Eviction from each year. and Unlawful Occupation

of Land Act.

Managing our Environmental Compliance with all legislation relating The Company strives toenvironment management to the environmental impact of the ensure compliance with allresponsibly Environmental Company’s operations forms part of environmental legislation

performance the governance focus. which impacts on its port, railand pipeline operations eg:National Environmental Management Act and Marine pollution legislation.



Transnet’s response to their needs

Employees and The public, financiers Customers Suppliers Labour Unions and media Communities

Delivering on its customer- Information and Through the Company’s As a State-owned enterprise Planning for the oriented approach, Transnet communication enhanced infrastructure that is the custodian of implementation of seeks to ensure that the infrastructure provides and skills development rail, port and pipeline Transnet’s necessary infrastructure the vehicle for data programmes Transnet infrastructure of South infrastructure capacity is delivered ahead integrity and embedding employees will be better Africa, Transnet is programme includesof demand. There is of a control framework placed to deliver the committed to earning engagements with theinteraction with key within the Company’s operational efficiency returns that are communities closest to customers on progress procurement and payment improvement to its commensurate with its the Company’s with regard to processes. customers. infrastructure investments. operations to implementation. understand any

environmental concernsthey may have on suchprojects or any perceptions on theenvironmental impactthereof and to addressthem accordingly.

Transnet’s customers are Healthy relations between Transnet is dedicated to Transnet values the The extended familiesconstantly taking note of Transnet’s staff and the revitalising of its importance of the of Transnet’sthe Company’s ability to suppliers form the back- human capital, thus investment in a sound employees aresecure a stable marketplace bone of proficient service providing its people with working relationship with dependent not onlyenabled by a suitably delivery. a sustainable business its employees and labour on the livelihood skilled, motivated and and an employer of choice. unions. Organised labour provided by jobproductive workforce. The Company constantly is an integral component security, but also on

seeks to establish of a well-managed and the extended roll-outopportunities for career progressive organisation of its employeeadvancement, and provides and the Company is wellness and HIV/Aidsbursaries and other skills dedicated to building its programmes.development programmes working relationship to its employees. based on mutual trust

and respect.The safety of Transnet employees is of The Company has alsoparamount importance been extending bursariesand stringent SHEQ to engineering studentsmanagement is central to ensure that it can drawto the ERM framework. from an enlarged pool

for its critical skills resource needs.

Prospective and current The economic development Transnet employees are The South African public’s To support the customers also seek best of Transnet’s suppliers dependent on job security, perception of Transnet as communities impactedpractice in social conduct as well as their safety fair remuneration and a good corporate citizen is by Transnet operations,when entering in a business management ability are career advancement largely influenced by its the Company is relationship. key focus areas of the opportunities to fulfil their response to social issues. improving the

Company’s supply chain responsibilities to society. integration of management. strategic CSI, as well

as rolling out a proactive safety awareness campaign.

Best practice in In its relationship with its Being an employer of The perception of Transnet Transnet shares theenvironmental management suppliers, Transnet can play choice also implies instilling as a good corporate citizen communities’ builds trust in the a crucial empowerment role a culture of accountability is further influenced by its responsibility for theCompany’s business in environmental awareness for the environment which responsible management environment which itsrelationships. and conduct. the Company impacts on of environmental issues. operations affect.

through its operations.



ACHIEVING RETURNS GREATERTHAN THE COST OF CAPITALFinancial managementTransnet’s key role, namely to assistin lowering the cost of doingbusiness in South Africa, whilstproviding cost-effective andefficient port, rail and pipelineinfrastructure and operations,remains a key pillar ofsustainability for the Company.

During the year, sustained financialperformance underpinnedTransnet’s transformation into amore focused and a more efficientfreight business as outlined in theChief Financial Officer’s reportfrom page 42.

Marketplace and customermanagementDuring the year, managementfocused on the delivery of a reliableand efficient service to all Transnetcustomers whilst increasing marketshare. In line with Transnet’scommitment to being a customer-focused organisation, greater focusis being given to customerrelationship management at Groupand operating division levels.

In the year ahead, Transnet willbuild on this foundation ofimproved efficiency. In addition,targeted relationship buildinginitiatives will further enhancecustomer satisfaction andretention, and in so doing,encourage positive market andcustomer feedback.

In support of the nationalimperative of promoting South

Africa as a favourable investmentdestination, Transnet is placingspecific emphasis on ‘red carpet’customer relations and conveyingthe message of ‘value-basedbusiness’ to ensure:• That freight shifts from road

to rail;• The lowering of the cost of

doing business; and• The improvement of freight

transportation’s impact on theenvironment.

Operations managementCentral to Transnet’s turnaroundstrategy is the redirection andreengineering of the businessto improve efficiencies andeffectiveness of core operatingdivisions.

The Vulindlela programme drivessustainable improvements inoperational efficiency, cost savingsand customer service processes.The initiative is also focused onchange management and developinga performance culture.

Vulindlela comprises a number ofprogrammes across all divisions witha major focus on Freight Rail. It hasplayed a fundamental role inimproving the alignment andcommunication between differentfunctions and operational areas.Strong programme managementoffices established at Transnetand within the operating divisionsensure compliance withcomprehensively defined policiesand processes. The programme issupported by strict corporategovernance, with the executives of

the Company being accountable forregularly reviewing the programmesto ensure sustainability and success.

Since its inception in August 2005,Vulindlela has met its annual andrecurring financial targets and hasinstilled continued improvement inoperational areas. Long-termsustainability is ensured bycombining operational andperformance levers withorganisational health elements,including human capitaldevelopment and performanceculture programmes. Prioritymanagement skills are also beingrolled out through a structuredcoaching and mentoring programme.

During the year, Vulindlela’spositive financial contributionaccelerated sharply, with asignificant impact on Transnet’soverall performance. Substantialimprovements in operational keyperformance indicators (KPIs) areevident in most areas whereVulindlela priority programmes areunder way. Vulindlela has also madea strong contribution to Transnet-wide capability buildingprogrammes as well as changemanagement and performanceculture initiatives.

In the year ahead, Vulindlela willyield structured plans to build uponand increase Transnet’s alreadyimproved financial and operationalperformance as well asorganisational health.


Supply management and BBBEETransnet supply management will,through professional delivery ofservices, play a pivotal role in theeconomic growth of South Africa.In addition to its day-to-dayoperational expenditure, Transnetfaces a unique challenge indisbursing a capital budget ofR78,9 billion over the next fiveyears on major and minor projects.The major projects includeextensive upgrades to the port inDurban and to rail lines.

To meet this and other managementchallenges, Supply Management hasembarked on a journey to achievethe following sustainable businessimpacts:• Fair and transparent dealings

with providers of goods andservices;

• The prevention of fruitless andwasteful expenditure;

• Delivery of effective andefficient supply managementprocesses;

• Sustainable cost savings; and• The development of globally

competitive local suppliers.

To achieve these goals, Transnetsupply management will embark onseveral value-driven initiatives:

Firstly, by focusing on strategicsourcing (the analysis and purchaseof commodities aimed at reducingthe total cost of ownership) Transnetcan ensure the best overall suppliertransactions for goods and services.The Company has set a three-yearsavings target of R1,6 billion ofwhich it achieved R552 million inthe first year.

Secondly, in addition to securingthe best value from its suppliers,

the Company is setting upmechanisms to improve supplychain processes, particularly forenabling the use and applicationof contracts and preventing off-contract purchases.

This necessitates that appropriatecontrols and governance areembedded in the business. ProjectShape Up guides the Company inmeeting its objectives of fair andtransparent dealings with thepublic, as it ensures that basic andfundamental processes are adheredto. Transnet has aligned its policiesand procedures as far as possibleto meet rigid standards ofacceptable practices so as toachieve and support allGovernmental initiatives andcompliance with for example thePFMA, IFRS and supplymanagement leading practices.

Thirdly, Transnet will implement theCompetitive Supplier DevelopmentPolicy in conjunction with itsshareholder (the Department ofPublic Enterprises) by structuringa Supplier Development Plan (SDP).The plan will consider opportunitiesto develop globally competitivelocal suppliers through variousstrategic initiatives forming partof Transnet’s support for theAccelerated and Shared GrowthInitiative for South Africa (AsgiSA).This is in addition to the Company’soverall compliance with theregulated requirements of BBBEEand enterprise development.

Fourthly, central to meetingTransnet’s strategic objectivesis the enablement of its peoplethrough the standardisation ofroles and remuneration,professional development, talent


management and successionplanning. A key initiative inachieving this enablement is theestablishment of an e-learningacademy in partnership with twoprofessional institutes, namelyIPSA (Institute of Purchasing andSupply of South Africa) and CIPS(Chartered Institute of Purchasingand Supply) of the United Kingdom.

Finally, Transnet is in the processof implementing the newmeasurement methodologyprescribed by the Department ofTrade and Industry (DTI) in terms ofits Code of Good Practice (CoGP)500 on preferential procurement.During the year Transnet hasobtained independent certificatesfrom verification agencies verifyingthe BEE contribution levels of mostof its high-value suppliers. The fullroll-out of preferential procurementmeasurement in terms of CoGP 500will be in place by the end of thenext year.

During the year Transnet’s coredivisions spent R10,6 billionexternally with suppliers, of whichR3,9 billion went to broad-basedBEE companies, up R0,6 billionfrom 2006.

* Based on discretionaryprocurement spend.Discretionary spend refersto the portion of totalprocurement where theCompany has the option todetermine whether goods andservices can be procured froma supplier. This figure is arrivedat after deducting non-discretionary procurement egimports and other itemsprovided by monopoly supplierseg water, electricity, telephone.

2007 BEE procurement*

BEE procurement R3,9 billion

37%

63%

Non-BEE procurement R6,7 billion


DEVELOPING WORLD-CLASSINFRASTRUCTUREThe provision, maintenance andreplacement of world-classinfrastructure technology – both inTransnet’s capital projects and interms of its information andcommunications technology –remain key enablers of thebusiness.

Rail, port and pipelineinfrastructureIn view of Transnet’s substantialfive-year capital investment plan,the Board approved theestablishment of a central capitalprojects team.

Transnet Projects is accountable to:• Ensure the successful delivery

of Transnet’s infrastructureprogramme of major projects;

• Implement a projectmanagement approachbenchmarked to world bestpractice to ensure that projectsare delivered on time, withinbudget and meet businessspecifications; and

• Ensure skills and technologytransfer within the Group.

With engineering skills at a premiumworldwide, Transnet has enteredinto a partnership with a consortiumof engineering, procurement andconstruction managementcompanies Hatch, Matt MacDonaldand Goba. Through this partnership,Transnet is assured of access to arequisite number of professionalengineers from local andinternational bases.

In addition, Protekon, responsiblefor rehabilitation, maintenance andemergency projects, has beenmerged with Transnet Projects tooptimise the utilisation of scarcetrained and experiencedengineering personnel withinthe Company.

The Transnet Projects managementsystem controls all facets of majorprojects during the prefeasibility,feasibility and execution phasesand the system is regularly audited.

• A specialist unit has beenappointed to manage allEnvironmental ImpactAssessments. This unit has alsoestablished successful workingforums with stakeholders inareas affected by theinvestment programme;

• A financial evaluation unit hasalso been established to ensurethat a detailed and consistentfinancial evaluation procedureis followed in any projectevaluation and to ensure thecommercial outcome ofinvestments and governingcontracts;

• Capital procurementprocedures that are aligned tobroader Transnet policies andgovernance. A formalpreference system based onthe Department of Trade andIndustry’s BBBEE scorecard, hasbeen introduced as an elementof the tender adjudicationprocess. Similarly, where

applicable, commitments wereobtained from foreign suppliersto adhere to the principles ofthe National IndustrialParticipation Programme;

• These supplier commitmentsare sufficiently flexible tosupport the objectives of theDepartment of PublicEnterprises’s CompetitiveSupplier DevelopmentProgramme, to which Transnethas recently committed itself.Construction contracts alsoplace emphasis on utilisinglocal labour; and

• The transfer of training andtechnology skills is animportant objective forTransnet. Instruction coursescovering a broad range ofproject management topics areoffered and a number ofbursaries are already in effectfor the engineering and projectmanagement disciplines.

The investment plan wasimplemented at an accelerated rateduring the year. The new structureadded significant value inenhancing corporate governance,improving risk management andincreasing transparency in theprojects.

Enhanced maintenanceIn addition to the provision of newinfrastructure across the rail, portand pipeline network, highperformance service delivery alsorelies strongly on maintenance ofthe existing infrastructure.


Construction workbeing performed at

Durban’s Pier 1Container Terminal.

During the year the integration ofFreight Rail maintenance depotsinto Rail Engineering, together withthe increase in financial resourcesallocated to major maintenancepractices, has facilitatedimprovements in the availabilityand reliability of wagons andlocomotives.

Information and communicationstechnologyGroup Information andCommunications Technology (ICT) isfocused on the development andimplementation of an enterprise-wide ICT strategy. It aims toinstitutionalise cost-effectiveautomation to ensure that theGroup’s operational delivery isoptimised.

During the year an increased focuson the replacement of operationalsystems resulted in the Company’sability to phase out legacytechnologies in a more timely andefficient manner.

The Transnet Business IntelligenceProgramme (TBI) is a key enabler inrealising stakeholder value. Anextensive set of KPIs was developedand enabled in a fully-operationalexecutive dashboard across Transnet.The focus in the year ahead is toensure the integrity of informationand to make information readilyavailable through focusedenablement projects.

In the coming year ICT will drivethe implementation of TBI into theoperating divisions. This is to

ensure that the programme formsan integral part of organisationalbusiness and managementprocesses.

Key programmes to ensuresustainability include the institutionof a network project (Ubambano), agovernance framework, anoutsource programme and cost-containment initiatives withinbenchmarked criteria.

To date, ICT has been successful inintroducing cost-containmentinterventions within the Company,thereby reducing ICT costs by 26%over the past two years. Theoutsource programme has reachedthe shortlist phase and will becompleted within the next year.

CREATING A WORKPLACE WHEREOUR PEOPLE CAN EXCELTransnet employs 48 578 permanentemployees countrywide in itscontinuing businesses. Managementpersonnel, professional specialistsand administrative staff make up9% of the total staff complement,whilst the remainder are bargainingunit employees. There is a high levelof unionisation: 86% of employeesare members of four trade unionsoperating at Transnet.

People managementIn 2006, Transnet’s Board approveda wide-ranging and far-reachinghuman resources strategy and planto transform people managementsystems, policies and processes inall its operating divisions. Roll-outof the strategy is well under way.

Change, transformation and cultureTo ensure successfulimplementation of the Company’sturnaround strategy, a variety ofinterventions have beenimplemented to align all levels ofleadership with key aspects of thestrategy and to ensure leadershipparticipation. Leadership orientedbehavioural aspects required forsuccess have been identified andagreed. Annual peer reviews withsenior managers will hold themaccountable for complying with thisbehaviour. The Executive Committeealso developed a new culturalarchitecture for Transnet, which willbe institutionalised throughextensive campaigns.

Employment equityTransnet is firmly committed toemployment equity (EE) anddiversity and embraces EE as acoherent and systematic approachto redressing the imbalances of thepast. In line with the “One Company,One Vision” philosophy, Transnet isin the process of developing aGroup-wide EE plan that providesan overarching framework forimplementing EE across the Group.Moreover, it supports Transnet’sfour-point turnaround strategy andits human resources strategy. Thefocus is on promoting equalopportunities and fair treatmentof employees through theelimination of unfair discriminationand the implementation ofaffirmative action measures toachieve equitable representationacross all occupational categoriesand levels.


Permanent employees at Transnet – 2007

Freight Rail


51%

28%

Port TerminalsPipelinesCorporate Centre(including Transnet Projects)

Rail Engineering

10%

7%

1% 3%

8 000

7 000

6 000

5 000

4 000

3 000

2 000

1 000

02006 2007 2008

Capital expenditure

Freight Rail

Port Terminals

Rail Engineering

R m

illio

n

Pipelines


3 80

918

978

377

622

0

7 38

762

3 1 02

6

7 87

8

1 74

0

3 94

93

136

900

699

310

Permanent employees at Transnet – 2006

Freight Rail


66%

14%

Port TerminalsPipelinesCorporate Centre

Rail Engineering

10%

7%

1%2%


Transnet seeks to create anorganisation that reflects thediversity of South African societyand that contributes to maximisingthe human resources potential ofall its employees.

Transnet strives to provideindividuals with disabilitiesopportunities to play a moreactive role in society.

Skills developmentDuring 2006, Transnet embarkedon a skills forecast processthrough detailed workforceplanning to ensure the availabilityof skills required for theturnaround strategy. The outputsof this process informed thedevelopment of skills pipelines tomatch supply with demand. Skillswill be sourced through internalinitiatives (including theengineering graduate programme)and external sources (schools,universities, scholarships andbursaries). The progress to date

in terms of the identified priorityskills for Transnet is as follows:• In a joint venture between

Transnet and Denel, 50 studentsenrolled in a Youth Foundationand Schools Outreachprogramme, focusing onmathematics and science;

• Currently Transnet sponsors176 bursars, in variousengineering disciplines athigher-education institutions.Included in this total theCompany enrolled 98 additionalbursars into the engineeringpipeline in 2007. This approachwould continue over the nextfive years, ensuring a steadyoutflow and absorption interms of engineering skillsrequired by the organisation;

• Transnet also sponsors173 students at institutionsof technology. This enrolmentnumber for workplace-integrated learningopportunities will graduallyincrease to reach a target of

300 learner techniciansqualifying per annum;

• To address the future needfor artisans in Transnet, a totalof 1 261 apprentices areundergoing training in differenttrades. These apprentices arein various stages of training(Phase 1, 2 and 3) spread overa three-year period. Includedin this total, Transnet inducted275 learners during the pastyear and a further 250 will besourced during the current year.This approach would continueover the next five years toensure that the Companysecures the necessary skillsrequired; and

• Sequenced delivery plans inrespect of identified priorityskills in rail movement, marineand port operations have beendeveloped.


Asian (A) African (B) Coloured (C) Total (Black) White Total Total

Employees F M F M F M F M F M F M F+M

Management 110 323 523 922 121 274 754 1 519 225 1 838 979 3 357 4 336

Non-managerial 182 1 061 4 380 22 419 710 3 205 5 272 26 685 1 282 11 003 6 554 37 688 44 242

Total – 2007 292 1 384 4 903 23 341 831 3 479 6 026 28 204 1 507 12 841 7 533 41 045 48 578

1% 3% 10% 48% 2% 7% 13% 58% 3% 26% 16% 84% 100%

Management 84 281 435 826 115 220 634 1 327 206 1 879 840 3 206 4 046

Non-managerial 211 1 100 3 640 22 114 702 3 163 4 553 26 377 1 375 11 142 5 928 37 519 43 447

Total – 2006 295 1 381 4 075 22 940 817 3 383 5 187 27 704 1 581 13 021 6 768 40 725 47 493

1% 3% 9% 48% 2% 7% 12% 58% 3% 27% 15% 85% 100%

F = Female M = Male

Nontsi Tshazi, thefirst woman in Africato be appointed tothe position ofHarbour Master.She replaces DennisMqadi in this positionin East London.

Trainees onDurban’s Pier 1.

The year ahead will see thedevelopment of competency-basedcareer ladders for priority skills,supported by customised capacitybuilding programmes.

During the year an extensive reviewof the efficiency and effectivenessof Transnet’s training centres wasconducted. The outcomes fromthe review will guide a series ofinterventions to optimise trainingdelivery in the year ahead.

Skills 2007 2006development R million R million

Training, bursaries and grants 219 180% of payroll costs 2,4 2,1

Transnet’s expenditure on skillsdevelopment compares favourablywith the average spend of SouthAfrican companies of 2,11% ofpayroll costs (excluding skills levies).

Talent managementThe Talent Management Programme(TMP) aims to harness Transnet-wide synergies by identifying thebest opportunities for keyemployees and accelerating theirdevelopment through specialassignments, projects andexecutive education.

The primary purpose of the TMP isto link the needs and interests ofTransnet and its employees formutual benefit through effectivetalent identification andmanagement, coupled with soundworkforce planning.

Performance and rewardTransnet strives towards aperformance driven culture. TheCompany’s new remunerationstrategy is geared to this purposeand is designed to attract, motivateand retain the right people, usingan appropriate mix of financial andnon-financial rewards.

A new performance incentivescheme was designed andimplemented for all employees.Approximately 4 000 non-bargaining unit employees weretrained on a new performance-management system with themajority having performanceagreements that form the basis forperformance reviews at the end ofthe year. These will determine anyincentive bonus scheme payments.The system will be furtherentrenched in the year ahead.

The Group has adopted a ‘totalcost to company’ reward approach,accompanied by a new contract ofemployment and the standard-isation of remuneration andbenefits for employees outsidethe bargaining unit.

Human resources (HR) enablementOverall HR practitioner competencehas been enhanced through changemanagement, capacity building andperformance management trainingprogrammes, which will continue in2007. New HR policies andsupporting standardised processesand accountability matrices havebeen developed. An education andcommunication campaign will ensure

their successful implementation.In 2007 an HR shared services centremodel will be initiated for highvolume transaction processing.HR has also introduced ameasurement dashboard to trackmonthly performance within arange of indicators.

Employee relationsDuring the year, the mostcontentious issue on the labourrelations agenda was the disposalof Transnet’s non-core assets.However, after numerous one-daystoppages, management andrelevant trade unions concluded anagreement to allow the disposalsto proceed without disputes.Following the disposal process,successful relationship-buildinginitiatives have included quarterlyunion-management lekgotlas andthe establishment of a forumcomprised of Transnet and unionleaders to discuss progress againstthe Company’s turnaround strategy.

During the year, additional employeerelations projects included therestructuring of the social plan toensure more effective and efficientmanagement of redundancies aswell as the negotiation of a newrecognition agreement withorganised labour.

Employee wellness and HIV/AidsThe HIV/Aids epidemic is a majorchallenge for South Africanbusinesses. Transnet acknowledgesits leadership role in the preventionof the disease and the treatmentand care of HIV/Aids infectedemployees.


Race and gender profile

Asian male

3%

2%

Asian female

1%

48%

10%

7%

26%

3%

African male

African female

Coloured male

Coloured female

White male

White female

Female tug pilottrainee.


Transnet’s HIV prevalence rate wasestimated at 9,7%, in October 2006.The estimate was based on animpact analysis conducted by OldMutual Group Assurance,specifically assessing therisk/benefit costs of HIV and Aidson death and disability. Theprevalence rate for the Group islower than expected whencompared to the South Africannational average, but this may beas a result of the ageing workforceprofile that currently exists withinthe Group, as well as geographicaldistribution. Currently,

846 employees are accessingHIV/Aids benefits and haveenrolled for the diseasemanagement programme.

In the next three years, Transnetwill focus on reducing the potentialhuman and financial impact ofHIV/Aids across the Group by:• Intensifying preventative

strategies;• Providing adequate and

appropriate treatment, careand support for employees;

• Aligning and integrating theHIV/Aids strategy with the


broader Transnet and HRstrategy; and

• Focusing on effectivegovernance and accountability,using a monitoring andevaluation framework.

Transnet’s leadership is committedto manage the social, economic anddevelopmental consequences ofHIV/Aids proactively as illustratedin the reality story below:

Facing the challengePort Terminals has taken a decisiveand leadership role in proactivelyplanning for the impact of theHIV/Aids pandemic and, in doingso, protecting its most valuableresource – its people.

Making the commitmentTo date, Port Terminalshas committed more than R3 millionto address employee healthcareissues and earlier this yearconducted an analysis of itsrequirements with the assistanceof occupational care specialists.The analysis revealed key barriersthat could hamper theimplementation of a robustHIV/Aids prevention and awarenessprogramme. Port Terminalsinitiated its roll-out which includedvoluntary counselling and testing

(VCT) as well as extensivemanagement education. The roll-out also included the developmentof a robust peer educator model toextend the reach of VCT benefits toas many employees as possible.

Consulting the stakeholdersOrganised labour has supportedPort Terminals’s HIV/Aidsprevention and awarenessinitiatives since inception andmanagement is currently assessingways of engaging all stakeholdersto further strengthen thiscollaboration.

Taking actionIn line with Port Terminals’scommitment to addressingHIV/Aids through a holistic wellnessstrategy, 60% of management aswell as 80% of its executive

committee participated in medicaland physical assessments. VCT,which is ongoing, is aimed at earlydetection and referral for diseasemanagement and also helpsidentify and document riskybehaviours that, once recorded,can inform improved planning.

Making progressTo date, approximately 4,2% ofemployees have access to thedisease management programme.In the year ahead, the programmewill be rolled out throughout theCompany, offering all employeesthe opportunity to be physicallyand medically assessed. Databasemanagement will be a criticalsuccess factor in tracking trendsto monitor new infections andstatus conversions from negativeto positive.

REALITY STORY: PORT TERMINALS LEADERSHIP TACKLES THE CHALLENGE OF HIV/AIDS

Employee safetyAt Transnet the safety of employeesand the public (for more on publicsafety refer page 76) has been, andremains, at the heart of itsEnterprise-wide Risk ManagementFramework. It provides Transnet withthe discipline and tools to masterrisk. Ultimately, safety is theTransnet Board’s responsibility.Until recently this responsibility wastaken up by the Audit Committee.Given the acute importance ofsafety, the Board has set up theRisk Committee during the year.

A new position, that of Chief RiskOfficer, has been created, to ensuresharp focus on safety at the highestlevel of the Company. Safety is nowfirmly escalated to the Board andExco. Apart from calling executivesto account to Exco:• Safety/toolbox talks, incident

recall sessions and informationsharing are being promoted toinculcate a culture ofaccountability for safety;

• There are follow-ups onoutstanding Board of Inquiry(BOI) hearings and assessments

of the implementation ofcorrective actions or plans thathave been recommended by theBOI; and

• Group Compliance and InternalAudit continuously provideassurance on the effectivenessof the safety and risk controls.

The responsibility for the roll-out ofsafety management resides withGroup Safety, Health, Environmentand Quality (SHEQ) RiskManagement. This responsibilityextends to all Transnet employees,including contractors, who play arole in delivering on thecommitments set out in the TransnetSHEQ Risk Management Policy.

During the year Transnet’s SHEQRisk Management Standards werereviewed and updated inaccordance with the Enterprise-wide Risk Management (ERM)Framework to ensure that they arecurrent, adequate and effective.

With safety remaining a keychallenge within Transnet, thesafety management process has


been centred on issues of employeeaccountability. These includediscipline and consequencemanagement for non-adherenceto operational and safetyrequirements.

During the year specific emphasiswas placed on inculcating a cultureof accountability through theVulindlela reengineeringprogramme.

We are saddened to report26 employee fatalities during theyear. A total o f 14 fatalities weredue to motor vehicle accidents and12 were caused by operationalinjuries. Refer to the graphicentitled ‘Employee fatalities’ above.Whereas the 2005 and 2006numbers reflected fatalities acrossthe five core operating divisions,2007 reported numbers include thenewly established Transnet Projects(nine employees).

SHEQ performance Target Actual Actual ActualIndicator 2008 2007 2006 2005

Cost of risk as %of revenue (%) 2,38 2,66 3,20 4,00DIFR (Disabling injury frequency rate) 1,20 1,30 1,40 1,60National Occupational Safety Association (NOSA) rating (%) 83 80 82 71(Audited annual SHE performance achieved)

30

25

20

15

10

5

02005

Employee fatalities

2006 2007

15 15

26



CARING FOR THE COMMUNITIESWHERE WE OPERATECorporate social investment (CSI)The Transnet Foundation seeks toaddress diverse socio-economicchallenges in South Africarecognising that dynamic andinnovative social contributionsare required to be effective andsustainable. The foundation’sorganisational objectives thereforeinclude the maximising of itsinvestment in the Government-defined target nodes by integratingthe focus and delivery ofprogrammes. It also contributestowards holistic educationaldevelopment by improving thestandards and quality of educationin selected schools, as well as

providing sport developmentinterventions to help addresssocial ills.

The Transnet Foundation reassertsits commitment to its businessgoals and will continuously reviewits objectives through internal andexternal mechanisms. TheFoundation will also maintainrelationships with strategicstakeholders whose partnershipshave, over the years, achieved highsustainability impacts.

Transnet takes cognisance of theSouth African Government’s keyfocus areas – known as ‘presidentialnodes’ – as well as how theseintegrate with the focus areas of

the Transnet Foundation. Nationalimperatives for infrastructuredevelopment, capacity building, jobcreation and HIV/Aids prevention,intervention and rehabilitation, arealso critical. These activities arecentral to the Transnet FoundationSocio-Economic DevelopmentInitiative (TSEDI). TSEDI endeavoursto optimise social and economicbenefits for communities that aremost in need of upliftment.

Other portfoliosIn the past year the foundation hasmade good progress in sports andeducation by building schools andproviding the infrastructure todeliver quality education tolearners. This portfolio has also

REALITY STORY: SAFETY FIRST AT FREIGHT RAIL

according to their adherence tothe safety programme.

Taking actionFreight Rail has identified fiveelements epitomising safety-related behaviour. These havebeen made the focus of its safetyawareness initiative. They are:focus on speeding; sleepiness;substance abuse; signals passedat danger; and the importance ofsupervision of pre-trip inspections.

Making progressFreight Rail has put in placecomprehensive plans to addresssafety together with checks andbalances.

family work to protect their ownsafety and that of their colleagues.This is to complement a majorcapital expenditure programmeover the next five years to refurbishageing infrastructure. The safetyprogramme integrates all businessfunctions and is being driven underthe Transnet-wide reengineeringprogramme, Vulindlela.

Consulting the stakeholdersEmployees are key stakeholdersand staff awareness is a keyelement of Freight Rail’s safetydrive. Chief Executive, SiyabongaGama, has written to each FreightRail employee explaining therationale for the safety campaignand that they will be rewarded

Facing the challengeImproving safety is one of FreightRail’s major operational challenges.As a result, the rail division hasidentified the following tasksrelating to maintaining safetystandards:• Ensuring that everyone in its

operations is committed toenforcing agreed standards andsystems of safe operation

• Replacing defectiveinfrastructure and rolling stockwhich contribute to FreightRail’s high incident rate .

Making the commitmentFreight Rail has integrated safetyinto all aspects of its business andall members of the Freight Rail

focused on the upgrading ofteacher skills, with emphasis onmathematics, science andtechnology. More than 10 rural andfarm schools across each provincehave been earmarked fordevelopment so as to overcometheir low pass rates, high crimeincidences and associated ills.More than 750 000 learners atschool level and 10 000 learner-athletes take part in the provincialand national inter-schools sportstournaments sponsored by TransnetFoundation. 75 000 boys and girlsare being introduced to a widevariety of sports codes.

Through the EntrepreneurialDevelopment portfolio Transnet’sunder-utilised containers weredonated to various communities toprovide offices for essential publicservices such as pension pay outs,social grant registration and other

pay out points. The containers arenow also being used as satellitepolice stations and training centres.

In the healthcare portfolio, thefoundation expects to introducethe second Phelophepa train in theyear ahead to improve the deliveryof mobile community healthcareservices. These services includeprimary health (including HIV/Aids),dental care, pharmacy and eye care.During the past year the train hasfacilitated the treatment of45 000 patients in 36 weeks afterhaving visited four provinces.The train is staffed by at least20 professional service providersand 37 students.

The arts and culture portfoliocontinues to support thedevelopment of sustainablecreative industries in South Africa.During the year projects such as the

North West Cultural CalabashFestival and the Women in ArtsFestival in Newtown were managedas part of a commitment to thedevelopment of small business andthe ongoing renewal of theJohannesburg inner city. The use ofTransnet Theatre Trucks continuesto bring events to people in ruralcommunities who would notordinarily benefit from such events.


2007 2006

CSI spend per portfolio R million % R million %

Sport and education 20 33 8 25

Health – Phelophepa 18 30 10 30

Arts and culture 7 12 6 18

Women, youth and children

development 5 9 2 7

Entrepreneurial development 3 5 2 6

Discretionary 7 11 5 14

60 100 33 100

Transnet Foundation split of CSI spendper portfolio for 2007

Arts and culture

33%

Health – Phelophepa

12%

30%

11%

9%

5%

Sport and educationWomen, youth and children developmentDiscretionary

Entrepreneurial development


Making the commitmentSince 1994 Phelophepa, Transnet’smobile health train, with its18 permanent staff members andmany volunteers, has travelledthrough out the country, especiallyrural areas, braving storms, thewinter chill and the scorchingAfrican sun, bringing much-neededprimary healthcare services toneedy fellow South Africans insupport of the South AfricanGovernment’s efforts to provideprimary healthcare for all.

Consulting stakeholdersPhelophepa’s success is due to itsability to work with multi-sectoralpartners. The train is marketedthrough community developers andfurther education and training (FET)

institutions. Besides Transnet, theinitiative receives support fromexternal donors including Roche,Colgate-Palmolive and CanonCollins Trust, totalling aroundR25 million during the year.

Taking action The train has reached and providedprimary healthcare services tomore than two million people andcontinues to instil a true sense ofpride in our country and its future,empowering communities to becustodians of their health andholistic wellness.

When the train visited Douglas,Modderrivier, Prieska and JanKempdorp in the Northern Cape, itsteam observed that people in the

areas needed more than thetreatment of ailments such asmuscular skeletal diseases,hypertension, diabetes, flu andSTDs and that systematicinterventions were also requiredto fight child malnutrition, womenabuse and teenage pregnancies.

Making progressKeeping Phelophepa on trackrequires dedication andcommitment. Everyone involved inPhelophepa shares the vision ofproviding quality healthcareservice to rural communitiesin South Africa.

Community impact and publichealth and safetyTransnet is acutely aware of theimpact of its extensive rail, portsand pipeline operations on theSouth African public and thecommunities in which it operates.The SHEQ standards developedduring the year lead the way forthe development and applicationof SHEQ management systemsacross the Group. They also extendto community impacts as well as topublic health and safety.

Public safety is of paramountconcern for Transnet. Safe rail levelcrossing by the public remains achallenge and awareness raising

initiatives are ongoing. Level-crossing incidents, as a majorcontributor to public fatalities,show a declining trend, in part asa consequence of the publicawareness campaign undertakenin Freight Rail.


250

200

150

100

50

02005

Public fatalities

2006 2007

214

188

167

Yet another patient beingtreated aboard the PhelophepaHealth Train in one of its clinics.

REALITY STORY: PHELOPHEPA HEALTH TRAIN


Facing the challengeDust generated by the iron oreoperations at the Port of Saldanhahas been a major challenge over theyears, mainly due to the nuisancefactor to the public. This hasresulted amongst other things inthe discolouration of paint onseveral of the houses in the area,as well as other propertysurrounding the port.

Making the commitmentIn 2006 Transnet, represented by itsChief Operating Officer, Louis vanNiekerk, committed itself toaddressing these and otherenvironmental issues by means of an

agreement with communities aroundthe port. This voluntary agreement isconfirmation of Transnet’scommitment to continualimprovement, responsibleenvironmental management andconcern for communities living nearits operations. So far, the Companyhas allocated a budget of more thanR108 million towards acomprehensive dust mitigation andmonitoring programme, which isbenchmarked against best practiceelsewhere in the world.

Consulting the stakeholdersThe community of Blouwaterbaai,a residential area near Transnet’soperations in Saldanha, formed aDust Concern Group and Transnethas been interacting with thegroup over the past year tomonitor progress on theimplementation of the agreement.A team of 40 local residents wasalso employed to clean up the quayas part of this project, thus

contributing to much needed jobcreation in the area.

The Environmental MonitoringCommittee (EMC) for Phase 1B,with representation fromcommunity members, monitors theimplementation of the agreement.

Taking actionTransnet’s programmes tomitigate dust include:• Providing covers for conveyors,

which will be completed by endof July 2007;

• Using environmentally non-damaging chemicals to spraythe dust, thereby reducing theuse of water, which is a scarceresource in that area, tomitigate dust;

• Improving the design of roadsurfaces is well under way, withmost of the roads to be tarredby October 2007

• Investigation of alternativewater resources for dustmitigation that has beencompleted with arecommendation for a reverse-osmosis plant. An environmentalassessment process will sooncommence for this; and

• Upgrading of the tippler dustplant number 1, has alreadyresulted in the reduction ofdust emission levels to farbelow international standards.

Making progressThe following initiatives are inplace to manage future impactson the environment:• The dust mitigation and

monitoring programme will

ensure, as far as possible, thatdust levels are reduced toacceptable local andinternational standards;

• An air quality managementstrategy for the port is beingdeveloped by the Council forScientific and IndustrialResearch (CSIR). Monitoringstations are located throughoutthe Saldanha, Vredenburg andLangebaan area to monitor dustfallout. The communityprovided input on the locationof these stations;

• Transnet does dust monitoring(PM10) on a daily basis andreports the outcomes monthlyto the community. Monitoringstations and cameras have beeninstalled to assist with this.Organisational reporting ondust incidents is also donemonthly;

• An online moisture analyser hasbeen installed to indicate whenmore water or chemicals shouldbe added to limit dust, resultingin much-improved managementof the whole system; and

• Additional sprayers at conveyortransfer points have also beeninstalled, reducing dust levelseven further.

Measures already implementedhave already shown majorimprovements and the following dryperiod (summer) will demonstratethe effectiveness of the mitigationmeasures put in place. Transnet willreport annually on progress withthe dust mitigation programme.

Dust covers are being putinto place at Saldanha’s

iron ore terminal.

REALITY STORY: DUST MITIGATION AND MONITORING IN SALDANHA



MANAGING OUR ENVIRONMENTRESPONSIBLYTransnet’s rail, ports and pipelineoperations have a potentiallyadverse impact on the environment.In line with its philosophy to deliverresponsibly on its commitments,Transnet strives to minimise theseenvironmental impacts.

Transnet’s SHEQ Risk ManagementPolicy commits the Company toproviding efficient freighttransportation on a sustainablebasis that enhances the interestsof stakeholders, while improvingsafety, health, environmental and

quality risk management. Thepolicy, therefore, governsoperational practices relating tothe management of environmentalrisks and provides the basis forimplementing Company-wideenvironmental managementsystems.

All operating businesses upholdthe SHEQ Risk Management Policy,which provides the framework forleading practice and theincremental accreditation intointegrated International StandardsOrganisation (ISO) systems by 2010.

During the year, Transnet investedconsiderable time and resourcesto anticipating, preventing andmitigating the effects ofoperational impacts on theenvironment.

The comprehensive SHEQ RiskManagement System Standard wasdeveloped, incorporating therequirements of the South AfricanConstitution and of the NationalEnvironmental Management Act,107 of 1998.

Facing the challengeThe busy ports of National PortsAuthority are vulnerable to an arrayof potential disasters that couldhave an adverse impact onstakeholder safety and health aswell as on the ‘silent stakeholder’ –the environment. National PortsAuthority ports are considered to beenvironmentally sensitive areas andare, therefore, constantly monitoredfor potential disasters.

Making the commitmentRecognising the importance oftesting the port’s readiness andresponsiveness in case of anemergency, the leadership at thePort of Richards Bay and Joint BunkerServices (JBS) terminal led an oilpollution simulation exercise at CoalBerth 209/301. Contingency teamsworked closely to simulate an oil spillfrom the vessel ‘Ocean Confidence’.

Consulting the stakeholdersAll relevant role players werecommissioned – including RichardsBay Coal Terminal, National PortsAuthority EnvironmentalDepartment, National PortsAuthority divers, Employee CareCentre, Corporate AffairsDepartment, South AfricanMaritime Safety Association, SouthAfrican Police Service and KwaZulu-Natal Wildlife. Stakeholders werealerted to the incident and wereasked to take the appropriateaction.

Taking actionThe simulation exercise took placeon 28 September 2006 and lastedan entire morning, with divers firstassessing the situation around thevessel. The employee care centreattended to an ‘affected’ fisherman

whilst the port’s environmentaldepartment and KwaZulu-NatalWildlife attended to pelicanscovered in oil. National PortsAuthority’s Corporate AffairsDepartment managedcommunication and updatedmembers of the media on site.

Making progressSimulation exercises such as thisare considered globally to bevaluable opportunities forassessing the reaction, resourcesand cooperation between impactedstakeholders. The lessons learntfrom this exercise were vital inequipping the port to attend tofuture incidents and proved toenhance the synergy between allstakeholders present.

REALITY STORY: DISASTER MANAGEMENT READINESS PUT TO THE TEST


The standard focuses on five keyphases:• Policy;• Planning;• Implementation and operation;• Checking and corrective action;

and• Management review.

During the year, Transnet focusedon integrating environmentalissues into the Company’s planningprocesses to better engage andcommunicate with impactedcommunities. Specific emphasiswas placed on the creation ofenvironmental management capacityin Transnet Projects to support majorprojects. The Company started theprocess of structured andco-ordinated engagement with

Dust covers atSaldanha preventdust pollution ofthe environment.

Government on environmentalmatters. This leads the way forproactively building sustainablestakeholder relations andcommunication in the year ahead.

In line with Transnet’s commitmentto managing operational impacts onthe environment, the Company willembark on the incrementalmeasurement of environmentalperformance in the year ahead.

The Transnet Board committed R3 billion to expand the iron ore line capacity to 47 million tons per year

Ope

rati

onal

repo

rts

OPERATIONAL REPORTSTransnet Freight Rail 80

Transnet Rail Engineering 94

Transnet National Ports Authority 106

Transnet Port Terminals 118

Transnet Pipelines 130


Transnet Freight Rail ordered 212 locomotives for its general freight business and 110 dual voltage locomotives for the coal line

Financial overview Year ended Year ended31 March 31 March

2007 2006Restated %

R million R million change

Salient featuresRevenue 14 574 14 055 4EBITDA 3 737 2 910 28Depreciation and amortisation 1 704 839 103Operating profit 2 160 2 006 8Profit/(loss) before taxation 968 1 064 (9)Net asset value 9 557 9 082 5Managed assets 24 305 18 489 31

Profitability measuresOperating margin (%) 14,8 14,3 4Return on net assets (%) 10,1 11,5 (12)Return on managed assets (%) 8,9 10,8 (18)

Capital expenditureTotal 7 387 3 809 94

EmployeesNumber of employees 24 811 31 398 (21)Revenue per employee 0,59 0,45 31


Revenue up

4% toR14,6 billion

EBITDA up

28%

Five-year capitalexpenditure plan

Freight Rail’s infrastructure represents approximately 80% of Africa’s rail network.

R34,8 billion


FREIGHT RAIL continued

BUSINESS OVERVIEWThe primary purpose of TransnetFreight Rail’s (Freight Rail) is thetransportation of rail freight. Thedivision continues to operate thelong-distance passenger servicesShosholoza Meyl and the luxury BlueTrain. However, as the processes forthe divestment of such services arewell advanced, they have beentreated as discontinued operationsin terms of IFRS 5 in the financialstatements. Shosholoza Meyl is tobe consolidated with the commuterpassenger services of the SouthAfrican Railway CommuterCorporation (SARCC), independentof Transnet. Divestment of thepassenger assets will enableFreight Rail to focus on its corebusiness of freight operations,which currently account forapproximately 95% of its revenues.

Freight Rail has a 22 247 km routerail network, of which some 1 500 kmcomprises heavy haul lines. Thenetwork connects the ports andhinterland of South Africa as well asthe rail networks of the sub-Saharanregion. Freight Rail’s infrastructurerepresents approximately 80%of Africa’s rail infrastructure

Freight Rail’s customer segmentscomprise:• Mining: coal, iron ore,

manganese, granite, chromeand non-ferrous metals;

• Manufacturing: chemicals, fueland petroleum, fertiliser,cement and lime as well as ironsteel and scrap;

• Containers and automotive:inter-modal wholesale andindustrial; and

• Agriculture and forestry: grain,stock feed and milling, timber,paper and publishing as well asfast moving consumer goods.

Performance highlightsManagement continued to focuson reestablishing Freight Rail asa world-class railway that is safe,meets the needs of its customersand makes an appropriate returnon invested capital.

Operational achievements duringthe year include:• For the first time, Freight Rail

transported all the coal andiron ore produced;

• EBITDA increased by 28% toR3 737 million (2006:R2 910 million) based onsignificant productivityimprovements and good costcontrol. However, an increasein depreciation of 103% toR1 704 million (2006:R839 million) as a result ofthe ramp-up of the majormaintenance programme,resulted in operating profitincreasing by only 8% toR2 160 million (2006:R2 006 million);

• Profit before taxationdecreased by 9% fromR1 064 million to R968 millionlargely because of theincreased depreciation,amortisation and finance costsas a result of the increase incapital expenditure;

• The operating margin improvedmarginally from 14,3% to14,8%;

• Stabilising the integration ofFreight Rail’s maintenancedepots into Rail Engineering.This programme effectivelydoubled the size of RailEngineering and has yieldedpositive results both in termsof productivity improvementsand of reliability of rollingstock. Wagon liftings at thecombined Rail Engineeringincreased from 12 000 perannum to 20 000 over the pastyear. Although output wasconstrained by a shortage ofnew wheel sets in the localmarket, the lifting programmemade progress in focusing onwagons that were significantlyoverdue for major maintenanceinterventions. This has had apositive impact on theavailability and reliability ofthe wagon fleet. The allocationof an appropriate capitalexpenditure budget to addressbacklogs in maintenance onlocomotives has also resultedin improved availability andreliability of Freight Rail’s keylocomotive fleets;

• Managing a capital programmeof R7 387 million (2006:R3 809 million), includingthe major maintenanceprogrammes amounting toR3 265 million. Theseprogrammes were aimed atexpanding capacity as well asaddressing the historicalunder-investment ininfrastructure and rolling stock;

KEY PERFORMANCE INDICATORS (KPIS) – FREIGHT RAIL

2006 2007 2007 2008 % changeActual Target Actual Performance Target vs actual

FinancialRevenue (R million) 14 055 16 478 14 574 Not achieved 16 643 14EBITDA (R million) 2 910 3 715 3 737 Achieved 4 509 20InfrastructureCapital expenditure (R million) 3 809 7 253 7 387 Achieved 7 878 7EfficiencyVolume – iron ore (mt) 29,6 32,8 30,0 Not achieved 35,0 17Volume – coal (mt) 68,7 74,0 67,0 Not achieved 72,0 7Volume – general freight* (mt) 83,8 85,0 79,6 Not achieved 82,1 3

* General freight volumes are a combination of metric tons of bulk commodities transported plus the number of vehicles and containers transported.The latter two are counted as one volume ton per unit transported irrespective of their actual mass.


• Establishing regionalmanagement structuresequipped to manage railwayoperations on a decentralisedbasis. These structures havebegun to focus on the rootcauses of ongoing safety issuesthat jeopardise the smoothrunning of Freight Rail’soperations and on improvingservice delivery;

• Commencing the programmeof rationalising holding storesscattered throughout SouthAfrica. These efforts, alignedwith the ongoing streamliningof the purchasing process,should significantly reducestockholdings in future, yetalso improve the distributionof critical infrastructurecomponents resulting inimproved infrastructuremaintenance practices;

• Initiated a fleet renewal strategyaimed at repositioning thegeneral freight business as agrowth sector going forward aswell as strengthening otheraspects of the bulk freightbusiness through:– The placing of an order for

32 additional new heavy haullocomotives for the iron oreline;

– Commenced a process toprocure 212 diesellocomotives to overcomecapacity constraints in thegeneral freight business; and

– The placing of an order for50 ‘like new’ refurbisheddiesel locomotives.

These acquisitions are inaddition to the order for

110 heavy haul locomotivesplaced in the prior year forthe coal business; and

• Increasing capacity on the coalline to 78 mt per annum(previously 72 mt per annum).This capacity will be increasedto 82 mt per annum during 2008,once the Jumbo coal wagonscurrently on order from RailEngineering and the first newheavy haul locomotives on orderfrom Mitsui are received. Thiswill be incrementally improvedin line with coal demand up to92 mt. These capacity increaseswill be based on coal customerssigning new long-term take-or-pay contracts for the rail service.

ACHIEVING RETURNS GREATERTHAN THE COST OF CAPITALFinancial managementFreight Rail is committed to beinga financially successful andsustainable business. TheImprovement of businessprofitability was, therefore, aprimary focus during the year.

Financial performanceRevenue increased toR14 574 million fromR14 055 million in the previousyear. However, volumes transporteddeclined as set out below.

The operating profit margin hasincreased to 14,8% from 14,3%,which can be attributed to the cost-savings initiatives undertaken.Included in the profit beforetaxation, is an amount ofR146 million relating to hedginggains on the funding of new

locomotives, incurred prior to theadoption of hedge accounting.

Total freight transported was lowerthan expected and can besummarised as follows:

Coal and iron ore volumes were lostdue to the unavailability of productfrom suppliers.

No growth in revenue was achievedin the passenger services. Thenational strike in the securitysector at the beginning of theprevious year impacted FreightRail’s services due to increasedcable theft. The latter affected ourability to deliver safe services andaffected the security ofpassengers, which discouraged theutilisation of train services.

The return on net assets beforetaxation was 10,1% compared to11,5% in the previous year. This ratiodecreased as expected as the resultof the increased capital spend anddepreciation and amortisation.

A transfer of 6 253 employeesto Rail Engineering during June2006 contributed to the reductionin staff numbers. The revenue peremployee increased and total costsexcluding depreciation, andamortisation declined fromR11 145 million in the previous yearto R10 837 million, indicating adecline in real terms as a result ofthe strict management of costs andimproved productivity.



Marketplace and customermanagementThe growth strategy was furtherrefined during the year and has arenewed focus on key risks andopportunities that will, over time,rebuild trust, enhance credibilityof the service offering and improveFreight Rail’s market position.A strategic plan was developed tovalidate market growth aspirations.This will be further enhanced by thefinalisation of the Rail Master Plan,which has a 20-year horizon.

A Customer Care Department wasestablished to deal with customers’concerns and to proactively informcustomers of operational incidentsas a first step towardstransforming the business into amore customer-focusedorganisation. The unreliability ofrail services and limited capacity –posing risks to customers and thefinancial health of the Company –were rigorously managed throughthe commercial stream of theVulindlela project.

Operations managementFreight Rail continued its mainoperational thrust of running ascheduled railway by means of anintegrated train plan. Whilst on-time departures and arrivalscontinue to show markedimprovement, they have not yetreached satisfactory levels. Poorequipment reliability, safetyrelated incidents and inadequateoperational planning continue tohamper progress in this regard.• The coal export line was

severely affected by the mines’

periodic inability to producecoal and their resultantcancellations of freightvolumes during the rainyseason that occurred in thefirst quarter of the year.Derailments reduced markedlyon the coal line as a result ofinvestment in backlogmaintenance, while othersafety related incidents suchas overhead rail hook-ups andcable theft have contributedto reduce capacity on some ofthe rail corridors across thecountry. The national strikein the security sector alsoadversely affected the deliveryof volumes.

• During the year much effort wasspent on in increasing installedcapacity in the rail system. Thiswill pave the way for a futuresustainable growth path. Therewas marked success across allsectors. However, there were anumber of factors, such as poorweather conditions, the shortsupply of wagons caused by aworldwide undersupply ofwheel centres and an unreliablesupply from the South Africansupplier as well as plantbreakdowns and productionproblems with some customers.

• Increased domestic demandfor steel and cement wasaccompanied by limitedproduction capacity from localproducers. The focus onsupplying domestic marketsresulted in increased importsand a reduction in rail trafficto Mozambique and Botswana.The local cement and steel

industries are investing inproduction expansion projectsthat will bring about additionalvolumes on rail in 2008 and2009.

• Chrome exports have increaseddue to a high demand by Chinafor metallurgical chrome and aweakening rand. The shippingrates for bulk commoditiesincreased significantly duringthe year, resulting in asignificant swing tocontainerised chrome exports.New exporters entered themarket during the year andFreight Rail is presentlyengaging customers to switchmore volume from road to rail.Freight Rail has increased thepayloads per train, increasingthe export tempo offerrochrome on the MaputoCorridor.

• The emergence of new entrantsin the manganese marketresulted in current marketparticipants engaging insignificant competitive rivalryfor the additional capacity.

• The energy portfolio wasnegatively affected byshutdowns, off-spec productsand the low global demand forexport pitch coke andammonium nitrate.

• The poor across-borderturnaround times of wagonsresulted in an embargo onsending Freight Rail wagonsacross the border. This, inturn, resulted in a reductionin transported fuel volumes.The business experienced a lossof copper volumes as delays


2007 BEE procurement

BEE procurement R1 490 million

40%

60%

Non-BEE procurement R2 250 million

caused by foreign partnerrailways have resulted in thenon-placing of empties atloading points in DRC andZambia. Domestic Maizevolumes transported acrossthe border have decreased asZambia experienced bettercrops in 2006.

DisposalsThe Blue Train will be sold to theprivate sector. Shosholoza Meyl(the inter-city passenger service)is to be transferred to the SouthAfrican Rail and CommuterCorporation (SARCC) in terms ofa decision by Government toconsolidate passenger rail services.It is anticipated that the disposalswill be completed this year.

Supply chain management andBBBEEFreight Rail’s supply chainmanagement made significant in-roads in achieving its objectivesof cost-containment and goodgovernance. Numerous initiatives,based on the Group SupplyManagement “flight plan” underthe Vulindlela programme, wereimplemented at different stagesduring the year. This created theopportunity for cost reductionsin procurement of more thanR340 million and vastly improvedthe internal procurement processesin line with the DetailedProcurement Policy (DPP). However,as a significant proportion of thesereductions affected heavymaintenance, capital expenditureand stock costs, the benefit to the‘bottom line’ will only be achievedin future years.

Freight Rail remains committed topreferential procurement of goodsand services under the newlyadopted broad-based BEE Codesof Good Practice. During the year,40% of the total procurementexpenditure went to BEE suppliers.In terms of the CompetitiveSupplier Development Programme(CSDP) and through Freight Rail’scapital budget, furtheropportunities will be created inthe next year for localmanufacturers to join the supplybase, provided that they can supplymanufactured goods at globally-competitive prices.

ASSURING SOUNDACCOUNTABILITY ANDGOVERNANCEIn line with Transnet’s governance,risk and compliance policies,Freight Rail has established aprocess for governance andidentifying, evaluating andmanaging significant risks thatinfluence the attainment of itsbusiness objectives.

To this end, in addition to theoversight afforded by the TransnetBoard of Directors and the variousBoard mandated committees,Freight Rail has established thefollowing committees tasked withoversight and governance roles:• Exco, which meets bimonthly, is

chaired by the CEO and isresponsible for approvingstrategy, capital investmentplans, annual business plansand ensuring performancemonitoring and delivery;

• Risk Committee, which meetsquarterly, is chaired by the CEO

and is responsible for allaspects of enterprise-wide riskmanagement with a particularemphasis on safety;

• Operating Committee, whichmeets monthly, is chaired bythe COO and is responsible foroverseeing all rail relatedoperating activities and isaccountable for the safeoperation of the railway;

• Investment Committee, whichmeets at least monthly, ischaired by the CFO and isresponsible for recommendingthe five-year annual investmentplans and for approving capitalexpenditure;

• Internal Control SteeringCommittee, which meetsmonthly, is chaired by the CFOand is responsible for ensuringthat appropriate controls areestablished and operated. Allreports of the internal andexternal auditors areconsidered at this committeeand corrective action plans aremonitored; and

• Acquisition Council, whichmeets monthly, is chaired bythe CEO and is responsible forawarding all major contracts.

Strategic directionFreight Rail aims to create areliable and profitable businessthrough the increase of rail volumesand freight traffic.

The business has identified thefollowing five strategic initiatives,rooted in Transnet’s four-pointturnaround strategy, in order toachieve its long- and medium-termfinancial and operational goals.



Safety: Transform Freight Rail intoa safe railwayThe Vulindlela safety programmeis at the core of Freight Rail’simprovements in safetyperformance. This reengineeringprogramme includes initiatives forthe implementation of a safetymanagement system based on bestpractice and ensures that safetystructures are properly integratedinto the business structures. It isthe intention to attain world-classsafety practices within five years.

Create capacity: Invest tomaintain, replace and increasecapacityCapacity will be sustained andcreated through extensiveinvestment in rolling stock andinfrastructure. The backlogmaintenance programme is aimed atrestoring railway capacity while thetransformation and reengineeringinitiative will further enhancecapacity by improving operationalefficiency and engendering aculture of continuous improvement.This programme aims to identifyprogrammes that enable the entityto do more with less.

Scheduled freight railway:Implement efficiencyimprovementsThe Vulindlela efficiencyprogrammes aim to improvethroughput, asset utilisation andproductivity on dedicated corridors(coal, iron ore and initially thegeneral freight NATCOR(Johannesburg to Durban) andCAPECOR (Johannesburg to CapeTown) corridors). These programmesare supported by processimprovement in the National

Operations Centre planning andmonitoring processes.

Customer service delivery: Retainthe desired customer base andimprove service deliveryThe Vulindlela efficiencyprogrammes, contributing tocustomer service delivery, and thecommercial programme – addressingyield management, pricing, volumegrowth, contracting and sales forcetraining – aim to retain and grow thedesired customer base.

Leadership and employeecapability: Optimise human capitaldeployment and developmentThe enhancement of leadershipand employee capability will beenhanced through Transnetinitiatives such as performancemanagement and rewardimplementation and, the roll-out ofprogrammes by the Rail Academy.These programmes focus on criticaloperational grades with particularemphasis on crew resourcemanagement. Employeeprogrammes will be augmented byextensive change leadership,business appreciation andtransformation programmes thattarget all employees.

Freight Rail will continue to improvecorporate governance byintegrating risk management andgovernance processes into businesspractice and Internal controls.

Risk managementDuring the year processes wereinstituted to enable soundimplementation of Enterprise-wideRisk Management (ERM). A sharperfocus was placed on capacity

building and skills enhancement soas to empower risk champions, linemanagement and other employeesin their risk management functionsand responsibilities.

The key financial, operational andcommercial risks, their root causesand associated impacts have beenidentified and evaluated. Controlsand action plans have beendeveloped to mitigate/treat rootcauses that lead to unacceptablyhigh residual risks.

Whilst some progress has beenmade in the implementation andembedding of ERM there are stillsome notable challenges.


Key risks at Freight Rail Freight Rail’s planned response

Operational safety Freight Rail acknowledges that incidents are preventable. It is thereforeimplementing various initiatives to inculcate a world-class safety culture.It continued implementation of the 5-S programme that closely monitorssupervision, speed, substance abuse, signal correction and sleepiness.This forms a basis for determination of focused corrective actions andimplementation thereof.Installing technological solutions such as ‘on-board computers’ (OBC) inlocomotives.Installation of the signals passed at danger (SPAD) detection system isunder way.

Asset performance Improving the availability, reliability and utilisation of assets.Eliminating the maintenance backlog through a planned maintenance regime.Addressing technical obsolescence of assets through investment plans.Conducting technical audits to assess the condition of assets.

Security, crime and sabotage Active participation in joint Government and SOE forums to fight crime.due to cable theft Engaging relevant Government structures to reclassify cable theft crime

as a more serious offence.

Skills retention Roll-out of the Talent Management Framework.Implementation of the performance and incentive scheme.

ENGAGING OUR STAKEHOLDERSFOR MUTUAL BENEFITFreight Rail recognises that anumber of stakeholdersare affected by operationalperformance. As such, theorganisation is committed toembedding the appropriateaccountability within itsoperational structures.

The Freight Rail SustainabilitySteering Committee played a keyrole in mapping stakeholders andidentifying the principal areasimpacting stakeholders. Improvedchannels for engaging with internaland external stakeholders formpart of this roadmap to embedorganisational sustainability withinFreight Rail.

DEVELOPING WORLD-CLASSINFRASTRUCTURERail infrastructureFreight Rail relies on its engineeringcapabilities for the provision,maintenance and timelyreplacement of infrastructure androlling stock to run a scheduledrailway. Ensuring reliability,affordability, availability and safetyof the network assets remains achallenge. To address this challenge,the capital investment programmewas accelerated during the year.

Capital investmentCapital spending for the yearamounted to R7 387 million(including capitalised maintenanceexpenditure of R3 265 million),compared to the R3 809 millionin the previous year.

The increase in capital expendituretargeted the under-investment ofthe past and addressed thecontractual commitments on theexport lines in terms of volumegrowth. Simultaneously, thereliability of the fleet, andinvestment to improve safety,remained a focus area. A majorcomponent of the capital planrelated to the acceleration ofheavy maintenance expenditure.

The Transnet Board approved thelocomotive fleet renewal plan inprinciple in August 2006 tothe value of R11 201 million(R2 659 million for upgradeprogrammes and R8 542 millionfor new locomotives).

8 000

7 000

6 000

5 000

4 000

3 000

2 000

1 000

02006

Capital expenditure

2007 2008

3 80

9

7 38

7

7 87

8



The fleet renewal plan will achievethe following objectives:• Address the under-investment

of the past 15 years, which wasaggravated by the lack ofeffective maintenance;

• Improve the efficiency andreliability of the railtransportation system;

• Contribute to the turnaroundprocess;

• Increase traction capacity tomeet the growth in railtransport demand;

• Provide traction flexibility on anon-homogeneous network; and

• Help modernise the fleet andretire ageing and maintenancehungry locomotives.

The planned capital expenditure forthe next year includes:

Functionality R million

Wagons 2 652Locomotives 2 273Infrastructure 1 667Information systems and technology 278Transtel – communications 180Train authorisations 164Electrical 148Plant and equipment 134Property – buildings and structures 113Prefeasibility 63Safety and security 58Telecommunications 52Technology 48Other 48

Grand total 7 878

Freight Rail has planned for thefollowing major capital expenditureover the next five years:

Business sector R million

General freight 24 603Coal line 4 911Ore line 3 764Ngqura 753Other 791

Grand total 34 822

Information and communicationstechnologyFreight Rail’s Chief InformationOfficer (CIO), operating underpolicies and procedures fromTransnet, is responsible for allaspects relating to enterpriseinformation technology and systems(IT&S). This encompassesapplication development andmaintenance, software andhardware management and thesetting of standards for technicaland business architecture across theinformation integration domains.

The following key objectives,pursued by the CIO during the year,will continue into the next year:• Optimising the use of the SAP

application software to realisesubstantial value from FreightRail’s current and futureinvestment in SAP. This includesthe identification of specificareas of improvement acrossprocesses, people, governanceand technology. Specific areastargeted during the yearinclude the development ofworkflow and process

automation of recordingemployees’ time worked; therefinement of controls; thetracking of capital expenditurein the financial modules of SAPand the development of acustomer relationshipmanagement (CRM) capabilityto provide a single view of thecustomer. The latter alsoimproves the capability forlogging all interactions withcustomers;

• Deploying IT to enablecontrolled time record keeping.This will provide a tool tomonitor unauthorised leaveand lost time while automatingtime calculations to ensurestandardised policyapplication. It will also providethe capability to link overtimeto productive work;

• Streamlining the IT architectureby replacing legacyapplications where required.This includes the developmentof consignment life cyclemanagement in SAP and thestreamlining of managementinformation; and

• Deploying IT to enable a safeand efficient railway throughthe integrated asset trackingprogramme. This encompassesall projects related to GPS,radio frequency identification(RFID) and on-board computers(OBC) to provide asset locationand speed monitoring. Itincludes the deployment ofhandheld terminals and readersto enable yard optimisation.


CREATING A WORKPLACE WHEREOUR PEOPLE CAN EXCELPeople managementFreight Rail currently employs24 811 permanent employees.This represents a reduction instaff numbers from 31 398 inMarch 2006, mainly as a result ofthe migration of major maintenanceand other engineeringresponsibilities to Rail Engineering.

The human capital strategy andfocus is embedded in Transnet’sfour-point turnaround strategy andhas had the following significanteffects during the year:• A critical skills framework was

developed;• Long hours for critical grades

were reduced;• Good corporate citizenship was

further institutionalisedthrough targeted trainingprogrammes;

• The ability to operate as ascheduled and stable railwaywas underscored byappropriate training initiatives;

• A talent management and skillsretention framework wasformalised; and

• Initiatives were introduced toensure the availability ofpersonnel within keyorganisational programmessuch as Vulindlela.

Change, transformation and cultureThe business simulation programmehas been successfully implementedat senior management level. Thegoal of this programme is tosupport business reengineeringprocesses by enabling employeesto understand the total businessand its interfaces, as well as thefinancial impact of their actions.Corporate governance, PFMAeducational programmes containingprocedure manuals and personalempowerment training programmeswere also successfully rolled out.

Employment equityThe Group Employment Equity Planwas tabled at Group Exco level inMarch 2007. In the year ahead,

Freight Rail will align with Groupnumerical targets of:• 71% black employees (at least

61% African);• 17% female; and• 3% people with disabilities.

Skills developmentThe current skills shortages havenecessitated multiple strategiesto acquire the relevant technical,operational and leadership skills.Freight Rail has embarked on adetailed skills planning and analysisprogramme to determine the skillspriorities for 2006 to 2012.

The following key skillsdevelopment initiatives wereundertaken during the year:• Mission-critical vacancies were

filled across the organisation;• A structured safety training

programme was successfullyrolled out; and

• Provisional accreditation wasachieved for all training centres.

Asian (A) African (B) Coloured (C) Black (A+B+C) White Total Total


Management 28 94 212 408 46 100 286 602 103 774 389 1 376 1 765

Non-managerial 60 374 2 695 11 613 346 1 493 3 101 13 480 763 5 702 3 864 19 182 23 046

Total – 2007 88 468 2 907 12 021 392 1 593 3 387 14 082 866 6 476 4 253 20 558 24 811

0% 2% 12% 49% 2% 6% 14% 57% 3% 26% 17% 83% 100%

Management 26 116 206 425 53 115 285 656 113 935 398 1 591 1 989

Non-managerial 73 466 2 583 15 286 401 1 978 3 057 17 730 938 7 684 3 995 25 414 29 409

Total – 2006 99 582 2 789 15 711 454 2 093 3 342 18 386 1 051 8 619 4 393 27 005 31 398

0% 2% 9% 50% 2% 7% 11% 59% 3% 27% 14% 86% 100%

F = Female M = Male



assist in rolling out a successionplanning framework.

Performance and rewardPerformance managementcontracts, supported by capacitybuilding efforts, were implementedfor the management cadre. Thefocus was mainly on securingmanagement commitment toensure that the Company secures itstransformational and business goals.

Human resource enablementFreight Rail embarked on numerousinitiatives during the year toexpand employee development,including:• Introducing an electronic time

and attendance system;• Developing, web-based learning

solutions;• Revising recruitment and

staffing policies andprocedures;

• Initiating a safety managementtraining programme; and

• Institutionalising leadershipdevelopment programmes.

Employee relationsThe employee relations climate isgenerally sound between FreightRail management and its labourunions. Communication forums areestablished and enable regularinteraction.

Management and unions that areparty to the Transnet BargainingCouncil concluded a VariationAgreement on the Basic Conditionsof Employment Act. This allows foroperational flexibility in a number

The integration of the currenttraining centres into a RailwayAcademy has progressed well, and itis expected that this will fast-trackthe development of core skills in theorganisation. The Railway Academyhas entered into a partnership withthe University of Pretoria to assistin the development of engineeringskills to address rail specificchallenges. Freight Rail’s capacitybuilding initiative for shop stewardsand supervisory staff in partnershipwith the University of South Africais also beginning to show results.

Altogether 2,2% of Freight Rail’slabour cost went to the trainingof critical skills, with more than5 000 employees being trained andan additional 1 301 employeesbeing recruited into mission-criticalpositions. 608 Learnerships werecompleted during the year and atotal of 311 bursaries have beenoffered to students in engineeringand commercial disciplines.


Training, bursaries and grants 101 101% of payroll costs (%) 2,2 1,9

Talent managementA retention strategy has beendeveloped, approved andcommunicated to key stakeholdersto ensure that an integrated systemfor identifying and retaining talentis established. This will further

of areas including daily and weeklyrest periods, maximum shift lengthsand limitations on workingovertime. This agreement is validfor three years and will lapse on31 March 2009.

Employee wellness and HIV/AidsFreight Rail implementscomprehensive programmes foroccupational medical surveillance,lifestyle management, employeeassistance and substance abuse.Education and awareness,counselling and medical treatmentform a critical component oflifestyle management as a meansof promoting healthy minds,healthy people, minimise chancesfor new HIV/Aids infections andimprove the quality of the life ofthe infected.

Employee safetyRail safety at Freight Rail has adirect impact on employees and thepublic (for public safety refer page91). During this year, a journeytowards the implementation of anintegrated safety, health,environment and quality (SHEQ)management system was started.

Freight Rail contracted advisoryfirm, DuPont International, toassess and assist in addressingsafety fundamentals. This initiativecontinues to focus on incorporatingsafety into all aspects of operationas well as changing culturalmindsets and behaviours towardsthe goal of improved safetyperformance. Training to inculcatea safety culture and build a safety



Cost of risk as % of revenue (%) 5,90 6,50 8,90 6,60DIFR 1,20 1,56 1,50 2,30NOSA rating (%) 80 75 70 69

Freight Rail employee fatalitiesFatalities on premises (suicide excluded) 2007 2006 2005

Injuries 5 4 5Diseases – – –Road traffic (public roads) 4 6 6

Total 9 10 11

conscious workforce wasimplemented to foster ownershipand accountability in Freight Rail.

Particular attention is focused onstrengthening the rail safetymanagement system and ensuringthat it adequately addresses therequirements of the South AfricanNational Standard 3000-1, onrailway safety. A project plan wasdeveloped to address identifiedgaps and implementation is underway. Amongst others, the planaddresses occurrence management,contract and contractormanagement, human factors andauditing.

CARING FOR THE COMMUNITIESWHERE WE OPERATECorporate social investment (CSI)In addition to the work of theTransnet Foundation, Freight Rail’scontinued refocus on communityinvolvement resulted in thechannelling of funds into two areas:

• Rail safety is a mandatory focusarea and falls within the CSIProgramme because of its linkto communities located next torailway lines. Freight Rail spentR10,5 million on external railsafety initiatives in 2006; and

• HIV/Aids interventionsaccounted for approximatelyR6 million of Freight Rail’s CSIexpenditure in this year. FreightRail supports the DeputyPresident’s “Partnership againstAids”, by running an annualpartnership train which bringstogether HIV/Aids serviceorganisation representatives,health care workers and peopleliving with HIV/Aids. FreightRail also collaborates with theDepartment of Health byrunning similar trains inobservance of World Aids Day.

Community impact and publichealth and safetyPublic health and safety is ofparamount importance. Injuries andloss of life are never acceptable andFreight Rail is committed toreducing the number of accidentsand fatalities in the year ahead. Thepublic fatalities during the yeardeclined by 13% compared to theprevious year.

Level crossing incidents show adeclining trend, in part as aconsequence of the publicawareness campaign undertakenin Freight Rail.

Public fatalities2007 2006 2005

Fatalities on premises(criminal activity and suicideexcluded) 161 185 199Road traffic (public roads) – – 10

Total 161 185 209

Management is deeply concernedby the above fatalities and each isinvestigated in depth. Accordingly,the dynamic safety plan is amendedtaking into account what we havelearned and receives constantfocus at the Group and DivisionalExecutive Committees.



MANAGING OUR ENVIRONMENTRESPONSIBLYIn managing the environmentalimpacts of its business activities,Freight Rail is guided by anenvironmental management system(EMS), which is in line with the ISO14001 International Standard. Thesystem enables Freight Rail toformulate appropriate policiesand programmes as well as toset environmental targets andobjectives while taking into accountever-changing legislativerequirements, business operationalrequirements and functionalprocesses.

Some of the achievements to dateinclude the compilation of theEMS procedure manual; independentreview of the EMS scope anddocumentation, updating of theFreight Rail Environmental AspectsRegister, review of theenvironmental response and siterehabilitation guidelines, revision ofthe Internal Audit checklists andguidelines and assessment criteriafor the sites earmarked for thescrapping of redundant rolling stock.Environmental awareness trainingwas conducted at all levels atFreight Rail.

PROSPECTSCommitting to stakeholder valueThe operation of a safe, scheduledand commercially sustainablefreight railway remains FreightRail’s key objective.

To achieve this, the business iscommitted to addressing the needs

of its customers, with dedicatedteams being established to focus onimproving customer relationships.Through this focus, Freight Railanticipates increasing its marketshare and thereby achievingsubstantial revenue growth.

To ensure improved servicereliability, planned capitalexpenditure has increased both forrolling stock and for infrastructure.This increase will address keypriorities and will focus on scheduledrepairs and maintenance planning.

Human capital plans are beingreviewed to improve the skillsbase, scheduling systems andcrew management to ensure thatthe business has the necessarycompetencies to achieve its growthobjectives.

This will deliver the followingresults over the next five years:• Transported volumes will

increase substantially and rail’sshare of transportable GDP willincrease accordingly;

• Financial returns will increaseto more sustainable levels inline with the benefits ofincreased volumes and beginto track favourably with globalrailways;

• Freight Rail’s service levels willbe returned to appropriatestandards; and

• Freight Rail will contributepositively to the efficiencyof the logistics system ofSouth Africa.


Capital expenditure inthe past year increasedto R7,3 billion, mainly toaddress under-investment of the past

The total number ofinjuries and occupationaldiseases dropped 14%compared to last year

Freight Rail plans tospend more thanR24 billion over the nextfive years on its generalfreight business


Rail Engineering’s Vandyksdrift wagon maintenance depot received the highest safety award for the eighth consecutive year


Revenue up

90% toR7,3 billion

R4,1 billion

EBITDA up

47%


Technology is fundamental to Rail Engineering’s operations and productivity

Financial overviewYear ended Year ended

31 March 31 March2007 2006 %


Salient featuresRevenue 7 317 3 845 90EBITDA 1 088 738 47Depreciation and amortisation 114 66 73Operating profit 944 671 41Profit before taxation 893 676 32Net asset value 2 007 1 390 44Managed assets 1 346 901 49

Profitability measuresOperating margin (%) 12,9 17,4 (26)Return on net assets (%) 44,5 48,6 (9)Return on managed assets (%) 70,1 74,4 (6)

Capital expenditureTotal 623 189 230

EmployeesNumber of employees 13 729 6 418 114Revenue per employee 0,53 0,60 (12)


RAIL ENGINEERING continued

BUSINESS OVERVIEWTransnet Rail Engineering (RailEngineering) is an operatingdivision of Transnet specialisingin the maintenance, upgrading andmanufacture of wagons, coaches,rolling stock components andassociated transport equipmentas well as in the maintenance andupgrading of locomotives throughits 151 sites and six main centrescountrywide.

The number of employees withinRail Engineering increased by114% during the year due largelyto the integration of 6 253 FreightRail Rolling Maintenance employeesinto the division. The staffcomplement in March 2007 was13 729.

Freight Rail and the South AfricanRailway Commuter Corporation(SARCC) are Rail Engineering’smain customers but products andservices are supplied to railwaysin Africa and abroad.

Rail Engineering’s vision is to be aworld-class provider of quality,cost effective total rail rollingstock engineering.

Performance highlightsThe following operationalhighlights were recorded duringthe year:• Revenue increased by 90% to

R7 317 million.• Operating profit increased by

41% to R944 million.• Procurement from black

economic empowerment (BEE)

firms increased fromR729 million in the previousyear, to R995 million this year.

• Rail Engineering successfullyintegrated the Freight Railmaintenance operation intothe organisation.

• Reliability and availability ofrolling stock on the coal andiron ore lines were significantlyimproved.

• Rail Engineering continued todevelop the upgraded 10M5commuter passenger train sets.

• The annual number of wagonmaintenance liftings increasedfrom 12 000 to 20 000.

ACHIEVING RETURNS GREATERTHAN THE COST OF CAPITALFinancial performanceRevenue and production volumesincreased to 86% and 91%respectively and as a resultrevenue increased by 90% fromR3 845 million in the previous yearto R7 317 million. This increase waspartly due to Rail Engineering’sintegration of Transnet Freight andRail’s maintenance operation.

The operating profit increased by41% from R671 million in theprevious year to R944 million,which can be attributed toimproved internal controls, bettergovernance structures and variouscost-saving initiatives.

Utilisation of assets increasedduring the year due to improvementin controls over various processes.

In an effort to improve efficiencyand generate positive returns, all

maintenance depots will beintegrated from cost centres intothe various operational businesses.

Marketplace and customermanagementRail Engineering is structured intoeight product-focused businessesto better service its customers’specific needs. The businesses are:• Locomotive;• Coach;• Wagon building;• Rail freight wagon refurbishing

(RFR);• Rotating machines;• Rolling stock equipment;• Wheels; and• Tarpaulins.

These businesses focus on marketrequirements and opportunities,including:• Increasing manufacturing

capacity for the construction ofnew wagons to serve the growthin iron ore and coal volumes;

• Upgrading and manufacturinglocomotives to meet the higherdemand on tractive effort;

• Improving technology incommuter train sets to raisethe level of passenger comfortand safety;

• Establishing new partnershipswith local and internationaloriginal-equipmentmanufacturers (OEMs) toexpand strategic capabilities indiesel engine remanufacture,bogies and locomotiveelectrical control systems;

• Expanding logistic and supportservices to serve the railway

KEY PERFORMANCE INDICATORS (KPIs) – RAIL ENGINEERING

2007 2007 2008 % change Target Actual Performance Target vs actual

FinancialRevenue (R million) 5 241 7 317 Achieved 7 566 3EBITDA (R million) 1 118 1 088 Not achieved 997 (9)InfrastructureCapital expenditure (R million) 375 623 Achieved 669 7Efficiency

General freight (%) 37,3 48,0 Achieved 48,0 –Locomotive reliability Coal (%) 28,3 43,0 Achieved 50,0 16

Iron ore (%) 18,5 57,0 Achieved 57,0 –

General freight (%) 82,2 85,0 Achieved 85 –Locomotive availability Coal (%) 88,0 85,2 Not achieved 89 4

Iron ore (%) 81,1 85,9 Achieved 86 –


auxiliary equipment market inSouthern Africa; and

• Developing over-borderlocomotive maintenancefacilities to assist neighbouringrail operators.

During the year, Rail Engineeringdoubled the output of new wagonsto 1 022 units and delivered thenew 10M5 commuter train sets.The Company, moreover, integratedFreight Rail’s entire locomotive,wagon and coach maintenanceoperations into its structure.

Customer alignment andassessment through routine surveysare ongoing. Where required, RailEngineering’s customer-serviceemployees are positioned in theoperational structure of FreightRail to gain a better understandingof customer needs.

Operations managementPerformance highlights for theyear include:• Successfully integrating

Freight Rail’s maintenanceoperation into Rail Engineering;

• Achieving a record productionof 1 022 new iron ore and coalwagons;

• Upgrading 65 class 6E1 to class18E locomotives;

• Upgrading 80-ton CR-S wagonsto 120-ton CR-14s;

• Completing a new octane tankwagon design;

• Vandyksdrift wagonmaintenance depot receivedthe NOSCAR award (highestsafety award) for the eighthconsecutive year; and

• Launching the 10M5 commutertrain sets.

Supply management and BBBEEThe total procurement expenditurefor the year was R3 166 million forRail Engineering Centres, of whichR995 million (31%) was spent onblack empowered companies.Businesses owned by black womenwill be given more considerationduring the next year to meet thenewly gazetted BBBEE requirements.

The savings for the year as a resultof divisional initiatives amount toR117 million, of which R69 million isbased on call-offs from long-termcontracts, whilst other procurementactivities yielded savings ofR48 million. In addition, numerouscontracts driven from the Vulindlelaprocurement initiatives arebeginning to show tangible results,which created the opportunity forfurther cost reductions ofR56 million, the most notablebeing savings on transport andproduction material.

ENGAGING OUR STAKEHOLDERSFOR MUTUAL BENEFITDuring the year Rail Engineeringcontinued to engage its keystakeholders such as Freight Railand SARCC as well asmanufacturers and productspecialists across the globe. RailEngineering management iscommitted to the continuousimprovement of the Company’sability to respond to differenteconomic, environmental needs,while ensuring all stakeholdersbenefit from engagement efforts.

ASSURING SOUNDACCOUNTABILITY ANDGOVERNANCERail Engineering is firmlycommitted to corporategovernance and has adopted aproactive approach to riskmanagement in line with the King IICode of Corporate Governance, theCompanies Act and the PublicFinance Management Act.

During the year Rail Engineeringfurther embedded sound governanceprinciples within the organisationby implementing local corporategovernance committees at all itscentres. Strong corporategovernance principles underscorethe implementation of Transnet’sfraud prevention strategy.

Strategic directionRail Engineering supports FreightRail in the provision of a rolling-stock equipment service. Thisservice is delivered through therunning of strategically positioneddepots and factories and thealignment of service deliverypriorities with Freight Rail’s nationaloperations requirements. RailEngineering continuously strivesto improve and increase serviceefficiency and rolling stock qualityin an effort to reduce the cost ofrail transport in South Africa.

Rail Engineering’s strategicobjectives include:• Continuation of the principle of

product-focused businesses;• Customer alignment –

Integrated planning between


BEE procurement R995 million

31%

69%

Non-BEE procurement R3 166 million



Freight Rail’s NationalOperation Centre and RailEngineering – focus on criticalflows especially GFB and fullalignment with Freight Rail’srolling stock plans;

• Enhancement of strategiccapability and capacity

• Reengineering to improveefficiencies throughimplementation of effectiveproduction control mechanisms,and of a daily productiondelivery report to manage theoutput of rolling stock. Itincludes modernisingequipment/infrastructure andtechnology and lowering thecost of production throughputby making use of smartertechnology, leveraging corecompetencies and use ofextended squad work to increasethe effect of skilled staff and thetransfer of technology and know-how through OEM partnerships;

• The maintenance of qualitycontrol and quality assurancesystems, non-conformancereporting (NCR) software toestablish root causes offailures and introduction oftimely corrective measures soas to reduce costs and increaseproduct reliability;

• Improve supply management,enter into strategic allianceswith key suppliers, updateprocurement procedures; and

• Increase volumes throughoptimising existing productionlines (eg increasing theproduction rate on the wagonbuild line in Bloemfontein to1 500 units per year).

Transnet policy, complete jobevaluation programme, executethe Skills Development andEmployment Equity Plans andtalent management for staffdevelopment and retention.

Risk managementRail Engineering is committed togood corporate governance andvigilant risk management throughthe vigorous implementation of theholistic and consistent ERMFramework. During the year furtherresources were provided to embedand sustain the ERM culturethroughout Rail Engineering’soperations, including the newlyintegrated maintenance depots.

Risk assessment workshops havebeen conducted at corporateoffice, functional support services,national, regional and localbusinesses for identification ofrisks and management thereof.

• Engineering/productdevelopment – aiming atexpanding technology andintellectual property subsistingin the product range through:– Product research;– Developing new

specifications (product,components and material);

– Product design anddevelopment – eg the all new11M metro trains;

– Processes documentation;– Industrialisation of

production lines; and– Update of product

handbooks, manuals andcatalogues;

• Restructure within locomotive,RFR (wagon refurbishing) andcoach businesses to achieveoptimised integratedmaintenance for highavailability and reliability ofrolling stock and refinebusiness systems – ICT projectto convert maintenance depotsfrom cost centres to the RailEngineering business model;

• Reduction of the rolling stockmaintenance backlog;

• Development of BBBEE inprocurement;

• Capital investment ininfrastructure, equipment,technology and systemscoupled with projectmanagement to achieveexecution and completion of thecapital expenditure plans; and

• Develop human capital(competency, skills training,recruitment), harmonise thehuman capital policies with


Key risks at Rail Engineering Rail Engineering’s planned response

Operational safety Enhancing discipline and consequence management.Heightening senior management’s visibility and participation in SHEQcampaigns Training all employees in safety issues.Performing regular audits and implementing recommendations.Conducting major incidents investigations by senior management andensuring corrective action.

Maintenance regime (achievability Reviewing quality control system and ensuring non-conformance is of availability and reliability targets) reported and corrective action promptly taken.

Improving relationships with main suppliers eg of critical components,assets, equipment to ensure planned and unplanned maintenance isachieved.Ensuring adherence to maintenance plans.

Skills development and retention Implementing the Talent Management Framework to ensure critical skillsare managed on a sustainable basis.Driving and managing performance culture by implementing an effectiveperformance management and incentive system.Constant industry analysis to inform remuneration changes.Maintaining the Student Bursary Scheme (SBS).

DEVELOPING WORLD-CLASSINFRASTRUCTUREEngineering infrastructureTechnology is fundamental to RailEngineering’s business. As such,the Company establishesrelationships with originalequipment manufacturers andrailway engineering specialistsacross the globe.

The integration of Freight RailMaintenance and Rail Engineeringfurther enhanced the engineeringcapabilities of Rail Engineering asthe engineering fraternities of bothoperating divisions have beencombined. This has resulted in astronger grouping that focuseson enhancing reliability andavailability of Freight Rail’s rolling-stock fleet.

New technologies are beingintroduced to addressobsolescence in the rolling-stockmanufacturing and refurbishmentenvironment. These range fromtechnologies to replace singlecomponents to major upgrades oflocomotives in collaboration withoriginal equipment manufacturers.

Because of new technologies usedin rolling-stock design, a SkillsEngineering department wasintroduced to ensure that the latesttechnical skills are integrated intothe curricula of the various trades.

Leading practices in engineeringare incorporated into RailEngineering’s growing productportfolio. In addition to its own in-house design office, which was also

enhanced by the integration withFreight Rail Maintenance, RailEngineering has access to externalspecialist design companies toacquire the designs and know-howfor developing new rolling stock.

During the year the 10M5 trainsset, a ‘clear-the-deck’ (removing allcomponents and the superstructureabove the floor and replacing itwith new) upgrade of the 5M2A,was introduced. It soon became thenorm for future suburban rollingstock of the SARCC. These trainsets were launched in KwaZulu-Natal and Gauteng during the year.Rail Engineering has nowestablished three strategic sitesto produce the 10M5: Durban,Koedoespoort and Salt River.



During the year, Rail Engineeringplaced added emphasis on qualityto ensure sustainable reliability andavailability of Freight Rail rolling-stock fleet. As a result, qualitymanagement systems wereintroduced in the maintenancedepots taken over from Freight Railon a pilot basis, with an emphasison product quality. The qualitymanagement system will be rolledout to remaining maintenancedepots during the coming year.

The local businesses within theRail Engineering workshops alsocompleted successful ISO9001(2000) accreditation auditsduring the last quarter of the yearto retain their accreditation.

Capital investmentCapital spending for the yearamounted to R623 millioncompared to R189 million in theprevious year. This significantincrease in capital expenditure ismainly attributable to theintegration with Freight RailMaintenance.

The capital expenditure for the2008 includes:

Projects R million

Purchase of machinery and equipment 355Upgrade of facilities 210Other projects 134

Total 699

Rail Engineering has planned for thefollowing capital expenditure overthe coming five years:

Projects R million

Purchase of machinery and equipment 2 043Upgrade of facilities 1 071Other projects 967

Total 4 081

Information and communicationtechnologyIntegrationDuring the year Rail Engineering ICTplayed a significant role in therolling stock maintenanceintegration project to migrate theFreight Rail Maintenance systemsinto Rail Engineering. The migrationinvolved SAP human resource andlogistics-finance systems, with theintegration team successfullymigrating the live Freight Rail SAPERP 2004 version system to theRail Engineering platform. Thisresulted in an 88% productivityincrease among system users inRail Engineering. ICT costs in RailEngineering were 1,2% of RailEngineering’s total revenue ofR7,3 billion during the year, which isstill below the accepted benchmarkof 3% adopted by Transnet. RailEngineering yielded significantbenefits in leveraging economies ofscale for supporting the additionalusers with minimum increase in ICTresources. This has contributed toRail Engineering’s cost-containmentinitiatives, in line with the prioritiesset by Transnet Group ICT.

MigrationIn March 2007 Rail Engineering ICTsuccessfully migrated the SAPhuman resource and logistics-

700

600

500

400

300

200

100

02006

Capital expenditure

2007 2008

R m

illio

n

189

623

699

finance systems from the HP DecTru64 platform to the IBM AIXplatform. This was a prerequisitefor the merger of various RailEngineering systems, referredto internally as the “the big bangproject”. The new IBM platformprovides superior systemperformance in terms of thetransaction processing speed tosupport key business processes.

Performance has improvedsignificantly compared to taskexecution timeframes prior tothe platform migration. RailEngineering has aligned its ICTstrategy with that of Transnet ICTto standardise all SAP systems onIBM platform/servers within theGroup.

Rail Engineering achieved successin merging the Rail EngineeringMaintenance SAP systems (formerFreight Rail Maintenance systems)into the Rail Engineering main SAPsystems. The new revenue-basedplant maintenance process model,which uses a service order for thesales process, was developed forthe maintenance depots.

General ICTRail Engineering ICT had a totalstaff complement of 70 this year.The internal ICT business of RailEngineering has attracted andretained the requisite skills tosupport all the ICT requirementsof the business, thereby eliminatingthe need for external assistance.


CREATING A WORKPLACE WHEREOUR PEOPLE CAN EXCELPeople managementThe number of employees withinRail Engineering increased by114% during the year. This increasewas due to the integration of6 253 Freight Rail rolling stockmaintenance employees into RailEngineering and the resultingincrease in business activity,tabled as follows:

Rail Engineering will focus on thefollowing key human capitalchallenges in the coming year:• Developing core competencies

required to achieve RailEngineering businessobjectives;

• Ensuring effective managementand retention of key talent;

• Developing leadership withappropriate competencies andvalues to drive Transnet’sbroader strategy and culture;

• Creating an enablingenvironment that ensuresharmonious workingrelationships through stableemployee relations andemployee wellbeinginterventions;

• Aligning and streamlining allhuman capital policies,processes, systems andstructures; and

• Developing capacity within RailEngineering to ensure fullintegration and assimilation ofthe Transnet culture.

Change, transformation and cultureThe integration of Freight Railrolling stock maintenancepersonnel and workshops was RailEngineering’s most significantchallenge during the year. Thisprocess entailed thesynchronisation of systems andthe revision of conditions ofemployment, policies and

processes between RailEngineering and Freight Railmaintenance employees. As aresult of the implementation ofeffective change managementprocedures the integration processproceeded with minimumdisruptions – both operationallyand from a labour relationsperspective.

Skills developmentDuring the year Rail Engineeringplaced a significant emphasis onskills development, focusing oncritical technical skills. Studentnumbers increased from 526 in2006 to 986 at the end of March2007. During the year, 214 studentscompleted their training as qualifiedartisans and were deployed into thevarious businesses within RailEngineering. The goal for the yearwas to have trained a minimum of1 000 Student Bursary Schemetrainees, thereby contributing

Employment equityRail Engineering is committed to employment equity. As at 31 March 2007, black employees constituted 70% ofthe Rail Engineering staff complement.



Management 7 41 96 178 12 39 115 258 21 325 136 583 719

Non-managerial 24 206 935 6 922 147 986 1 106 8 114 258 3 532 1 364 11 646 13 010

Total – 2007 31 247 1 031 7 100 159 1 025 1 221 8 372 279 3 857 1 500 12 229 13 729

0% 2% 8% 52% 1% 7% 9% 61% 2% 28% 11% 89% 100%

Management 4 23 62 78 12 20 78 121 14 182 92 303 395

Non-managerial 4 113 425 2 989 68 415 497 3 517 129 1 880 626 5 397 6 023

Total – 2006 8 136 487 3 067 80 435 575 3 638 143 2 062 718 5 700 6 418

0% 2% 8% 48% 1% 7% 9% 57% 2% 32% 11% 89% 100%

F = Female M = Male



to the availability of critical skillsto meet future requirements. Thisgoal was exceeded by 200 students.The training department iscurrently assessing and recruitingnew students.



Talent managementDuring the year Rail Engineeringlaunched its talent-managementprogramme. The programme aimsto manage and retain key talenteffectively. The Talent Frameworkwas developed and adopted by RailEngineering’s Executive Committee(Exco). Additional capacity buildinginitiatives have provided all humancapital practitioners with thecapacity to manage this process.As at 31 March 2007, 60% of allmanagers have been trained. In theyear ahead, Rail Engineering willconclude this training and aim toestablish talent forums throughoutRail Engineering.

Performance management andrewardRail Engineering’s PerformanceManagement System wassuccessfully implemented duringthe year. The system is geared toenhance employee performanceand productivity. All non-bargainingemployees have received therequisite training.

Managers have concluded their keyperformance agreements andstrategic-performance objectives(SPOs). Future challenges includeconducting the final performancereviews and training all managersand HR practitioners in handlingboth poor and superiorperformance.

The current Rail Engineering gain-sharing incentive scheme for thebargaining unit was extended tothe newly-integrated employees(former Freight Rail) in October2006. They received their firstgain-share payments in January2007.

The scheme continues to play apivotal role in enhancing theperformance and productivity ofRail Engineering employees.

Human resource enablementRail Engineering focused on thedevelopment of its human capitalsystems during the year to supportsound human capital decisionmaking. The development processalso included the redesign of RailEngineering’s organisationalstructure to integrate with theformer Freight Rail maintenancestructures and alignment with thetwo SAP payroll systems witheffect from 1 April 2007.

The challenge in the year ahead isto implement the SAP time andevents module and other SAP CHRrelated modules.

Employee relationsSeveral employee relationinitiatives were launched during

the year. The Transnet Excoapproved a number of HR policies.A communication plan is in placeto roll out these policies in RailEngineering.

Training in disciplinary managementcontinued and approximately 70%of Rail Engineering’s line managershad received training by the end ofMarch 2007.

An extensive absenteeismprogramme is under way to improvethe management and control ofemployee absenteeism across RailEngineering.

Employee wellness and HIV/AidsThe SHEQ management system atRail Engineering also governs themanagement of employee health.

Rail Engineering has acomprehensive lifestylemanagement programme (LMP) inplace, as well as voluntary HIVcounselling and testing (VCT)programme to expand HIV/Aidsawareness and to supportemployees infected with thedisease. During the year 80% ofthe total workforce was trained inHIV/Aids management and theTransnet lifestyle managementprogramme (LMP), while 60% ofemployees participated in the VCTprogramme, reflecting the successof the HIV/Aids campaign.The number of employeesparticipating in the LMP increasedsignificantly in the year.



Cost of risk as %of revenue (%) 1,20 1,31 1,20 1,62DIFR 1,50 1,77 2,60 2,14NOSA rating (%) 80 75 70 65

Rail Engineering employeefatalities 2007 2006 2005

Fatalities on premises (suicide excluded)

Injuries 1 – –Diseases – – –Road traffic (public roads) 1 – –

Total 2 – –

Employee safetySafety in the everyday operationsat Rail Engineering has a directimpact on employees and the public(for public safety refer below).Safety is an integral part of theoverall SHEQ management system.Strong focus is also given tocontractors’ adherence to healthand safety protocols.

The integration of RailEngineering’s maintenance depotsnecessitated rigorous andimproved safety awareness andcompetency levels. As a resultthereof Rail Engineeringmaintained high safetyperformance levels during the year.Safety performance is constantlymonitored and managed withemployees receiving regulartraining in operational health andsafety awareness and proficiency.During the year specific emphasiswas also given to meeting therequirement of the National

Railway Safety Regulator Act, 16 of2002, and its regulations.

CARING FOR THE COMMUNITIESWHERE WE OPERATECorporate social investment (CSI)Rail Engineering has embarked onstrategic corporate socialinvestment programmes andbelieves in making a positiveimpact on the lives of communitiesin its area of operation. TheCompany is also committed tothe responsible management ofenvironmental and social impactsresulting from its operationalactivities. This includes partneringwith communities and otherdevelopment agencies to helpfoster sustainable communitydevelopment.

During the year, Rail Engineeringallocated a portion of its CSIbudget to the maintenance of theTransnet Foundation’s Phelophepahealthcare train. This formed part

of Rail Engineering’s contributionto the 16-coach train which deliverscomprehensive, affordable andaccessible healthcare tocommunities with no healthservices or with poor healthcareinfrastructure.

Rail Engineering also continuedto support the Saints wheelchairbasketball team, the NorthernTitans deaf cricket week, the BlueBulls Youth Club developmentprogramme and the Tshwane YouthOrchestra.

Rail Engineering has a moral andlegal duty to ensure the health andsafety of all employees. Thisobligation also extends to thehealth and safety of clients and thecommunities in which they operate.We are pleased to report that nopublic fatalities have occurred asa result of Rail Engineering’soperations since 2001.

Community impact and publichealth and safetyAt Rail Engineering the healthand safety of clients and thecommunities in which it operatesform part of broader riskmanagement. No public fatalitieshave occurred as a result ofRail Engineering’s operationssince 2001.



MANAGING OUR ENVIRONMENTRESPONSIBLYAt Rail Engineering, focus onenvironmental issues is an integralpart of overall SHEQ management.During the year a concerted effortto minimise its environmentalimpact resulted in the furtherrehabilitation of polluted sites andthe implementation of preventativemeasures. Regular environmentalimpact assessments (EIAs) arebeing performed at all plants andmaintenance depots.

PROSPECTSCommitting to stakeholder valueRail Engineering aims to develop aSouth African rail industry in whichall supply chain participants – bothlocal and international – canoperate seamlessly andsynergistically, thereby culminatingin the formation of an effective andefficient rail service to the benefitof the overall economy.

In anticipation of the potentialbuild-up in transportation demandahead of 2010, Rail Engineering willfocus on the design anddevelopment of the next generationof electric commuter coaches andwill fast-track production capacityand technology improvements inthe manufacture of 10M5passenger coaches.

Skills training programmes,particularly those relating totechnical competencies, will bean important focus area for RailEngineering in the year ahead. Thiswill be coupled with specific OEMpartnerships to transfer skills andtechnology for new rolling stockprojects.

Locomotive building capacity iscurrently being expanded tomeet the growing demand and theintegration of Freight Rail’sAuxiliary Equipment structure intoRail Engineering is scheduled totake place during 2007.


Smarter technology andproper training helpreduce production costs

The wheel business isone of the division’seight product-focusedbusinesses


Transnet National Ports Authority bought two tug boats for the Durban Port during the year


National Ports Authority plans to spend approximately R18,5 billion in the next five years upgrading infrastructure in the seven ports it manages

Revenue up

12% toR6,1 billion

R18,5 billion

EBITDA up

9%


Financial overview March March2007 2006 %


Salient featuresRevenue 6 107 5 438 12Depreciation and amortisation 418 439 (5)EBITDA 4 627 4 242 9Operating profit 4 484 4 075 10Profit before taxation 4 346 3 732 16Net asset value 17 484 14 627 20Managed assets 17 976 15 693 15

Profitability measuresOperating margin (%) 73,4 74,9 (2)Return on net assets (%) 24,9 25,5 (2)Return on managed assets (%) 24,9 26 (4)

Capital expenditureTotal 1 026 783 31

EmployeesNumber of employees 3 251 3 236 0,4Revenue per employee 1,88 1,68 12

BUSINESS OVERVIEWTransnet National Ports Authority(National Ports Authority) isresponsible for the safe, efficientand effective economic functioningof the national ports system whichit manages, controls andadministers on behalf of the SouthAfrican Government. National PortsAuthority’s core services asstipulated in section 11 of theNational Ports Act, 12 of 2005, are:• The planning, provision,

maintenance and improvementof port infrastructure, includingbreakwaters, seawalls,channels, basins, quay walls,jetties, roads, railways and theinfrastructure used for theprovision of water, lights,power, sewerage and similarservices;

• The provision or coordinationof marine-related servicesincluding pilotage, tug servicesand berthing; and

• The provision of port services,including the management ofport activities and the portregulatory function at all SouthAfrican ports.

National Ports Authority providesits services to port users. Theseinclude terminal operators,shipping lines, ship agents, cargoowners and the clearing andforwarding industry.

National Ports Authority owns andmanages the seven ports withinSouth Africa: Saldanha Bay, CapeTown (including Port Nolloth), MosselBay, East London, Port Elizabeth,Durban and Richards Bay. The Port ofNgqura, currently under construction,is the eighth port under NationalPorts Authority’s control.

The National Ports Act becameeffective on 26 November 2006,ushering in a new regulatory regimefor South Africa’s ports requiringthe National Ports Authority tofulfil various statutory obligationsand to become subjected tooversight by an independent portsregulator. During the latter part ofthe year leading into the new year,National Ports Authority reviewedits current processes and practicesin ensuring that the division iscompliant with the requirementsof the Act.

Performance highlightsRevenue increased by 12% toR6 107 million, compared toR5 438 million in the previous year.Operating profit increased by10%, to R4 484 million fromR4 075 million.

The following operationalachievements were recorded duringthe year:• The widening and deepening of

the Durban entrance channelwas approved and preparatoryworks commenced;The contract for the remainingcivil works required for the portof Ngqura phase 1 was awarded,and progress is on schedule forcompletion by 2008;

• A capital-management projectsoffice was established;

• Specific targets andmeasurements of vesselchangeover time wereinstituted at the DurbanContainer Terminal as part ofthe Vulindlela programme;

• Leading-practice capitalmanagement processes wereintroduced to manage capital

projects effectively during theexecution of the capital plan;

• 14% growth in containers andvehicles handled increasing by25%;

• Customer service centres wereestablished at the ports of EastLondon and Cape Town;

• The first release of PortsOnlinewas delivered to the ports ofPort Elizabeth, East London,and Mossel Bay. These portsare now able to submit cargodocuments electronically toNational Ports Authority;

• National Ports Authorityimplemented key performanceindicators (KPIs) at all the ports;

• The Ports Act alignmentprogramme was initiated toprepare and equip NationalPorts Authority to meet thepromulgations of the Ports Actand Ports Regulator;

• An employee wellbeingprogramme was launched;

• The marine pilot trainingprogramme was expanded andnow has 12 trainees;

• An agreement to sponsor achair (learnership) for port andcoastal engineering wasconcluded with the Universityof Stellenbosch;

• Increase in oil and gas activitieshas resulted in oil rigs beinghandled at the Port of CapeTown;

• Implementation of humancapital development initiativesin accordance with the Transnetstrategy;

• The Port of Durban hascontributed significantlytowards the achievement ofsavings as per the Vulindlelastrategic sourcing initiative;


NATIONAL PORTS AUTHORITY continued

KEY PERFORMANCE INDICATORS (KPIs) – NATIONAL PORTS AUTHORITY

2007 2007 2008 % changeTarget Actual Performance Target vs actual

FinancialRevenue (R million) 5 915 6 107 Achieved 6 881 13EBITDA (R million) 4 383 4 627 Achieved 5 125 11InfrastructureCapital expenditure (R million) 1 964 1 026 Not achieved 3 949 285EfficiencyBerth Occupancy (%) 58,9 66,0 Achieved 66,0 –


• A 99,97% availability of thelighthouses was achievedduring the year, against arecommended availability of99,8% of lALA (InternationalAssociation of Marine Aids toNavigation and LighthouseAuthorities); and

• Light House Services (LHS)signed a cooperationagreement with Malawi, for theprovision of aids to navigation.LHS was also contracted toprovide and install AtoNequipment for the Moma Jettyin Mozambique.

ACHIEVING RETURNS GREATERTHAN THE COST OF CAPITALFinancial managementFinancial performanceRevenue increased by R669 millionor 12%, which includes an averagetariff increase of 1,3% and avolume increase of 15,5%. This ismainly as a result of increasedvolume activity amounting toR539 million and increases ofR20 million in marine services(pilotage, berthing, floating craft).

Operating cost before depreciationand amortisation increased byR283 million or 24%. These costsinclude an additional research anddevelopment cost of R35 million andan additional cost of R26,5 millionfor dredging maintenance.

Accounting for investment propertyin terms of IAS 40 has contributedR292 million to the year’soperating profit.

Return on net asset valuedecreased from 25,5% to 24,9%.

Marketplace and customermanagementUnlike most European ports, eachSouth African port has a naturalhinterland with a defined marketthat largely determines the natureand types of cargo handled.

The seven operating commercialports managed and controlled byNational Ports Authority on a2 954 km coastline form an integralpart of South Africa’s transportnetwork. They are linked to the roadand rail systems that serve theinterior of the country and extendbeyond its borders. Road hauliersoperate between the South Africanports and into neighbouring Africancountries, complementing theregular rail services, while coastalfeeder services provide forcoastwise traffic.

In addition, National PortsAuthority is playing a pivotal rolein international trade through theprovision of suitable infrastructureahead of demand. National PortsAuthority held various marketingand promotional activities for eachport and hosted international portdelegations mainly from the USA,China, Korea and Europe. Thisprovides customers with accessto suitable foreign ports of finaldestination. Through thispromotion National Ports Authorityhas also instituted numerous ‘sisterport’ agreements, facilitatinginformation sharing between theSouth African ports and other portsworldwide.

Operations managementThe National Ports Authorityoperations plan outlines National

Ports Authority’s actions in the yearahead to improve port operationsin the following areas.• Operational efficiency: The

draft Terminal OperationsAgreement has beencompleted. The documentcontains efficiency measuresand facilitates the measuringof operational efficiencies atterminals as well as marineservices on a monthly basis.

• The five-year investment planhas been updated. The revisedplan addresses operationalneeds, the improvement andreplacement of obsolescentequipment and infrastructure,and the provision of additionalcargo handling capacity tosatisfy growing demands.

• Communication platform:Publications, media briefingsand communications plans havebeen initiated.

• Cargo and information flows:A National Ports Authority webportal has been developed tofacilitate a paperless portenvironment.

• Customer service centres: Thedesign of customer servicecentres for all ports has beencompleted and implemented atDurban, East London, PortElizabeth and Cape Town.

• Safety and security: Phase 1of the upgrades has beencompleted at all ports.

Supply management and BBBEENational Ports Authority’s supplymanagement focuses on thecommunication of the strategicdirection of procurement withinthe organisation and ensures goodgovernance. It also institutionalises

the integration of efficientsourcing activities to deliveroptimal supply chain value.

In line with supply managementpolicies formulated by Transnet inthe new Group policy framework,National Ports Authority hasintroduced changes to enhanceproductivity within its procurementprocesses. National Ports Authorityis currently implementing ISOstandards to support compliance,establish contracts and servicelevel agreements to curtailspending and enhance servicevalue. In this way National PortsAuthority is aligning allprocurement objectives withTransnet’s strategy and timelines.

National Ports Authoritymanagement is committed toaddress operational challengesproactively in the coming year.These include the adherence toproper procurement proceduresso as to foster a better culture ofcompliance and to facilitate theroll-out of standardised reportingstructures.

National Ports Authority hassuccessfully sustained its businessin view of radical socialtransformation since 1994. Notonly has the Company reformed itsstaffing profile in line with broad-based black economicempowerment (BBBEE), but it hasalso restructured its businessprocesses to meet the challengesof the 21st century with efficiency,advanced technology and world-class standards.

ASSURING SOUNDACCOUNTABILITY ANDGOVERNANCENational Ports Authority isdedicated to sound corporategovernance compliant with the KingII Code of Corporate Governance,the Companies Act and the PublicFinance Management Act (PFMA).No contraventions of the PFMAwere reported to managementduring the year.

Strategic directionNational Ports Authority’s strategicobjectives for the next year include:• Maintaining and growing

national port infrastructure, byexpanding resource capacity toharness domestic andinternational trade growthopportunities, while reducingthe costs of port management.Strategic imperatives inachieving this objective include:– Optimising institutional

processes for effectiveperformance and delivery;

– Developing human capitalpotential by initiating marineoperations learnerships,implementing engineeringcareer ladders andestablishing the PortAcademy School of Ports;

– Increasing financial capacityto afford and fund the capitalinvestment programme;

– Introducing a capitalmanagement projects office;

– Implementing keyperformance indicator (KPI)management to measureoperational performance;

– Implementing an HIV/Aidsawareness programme;

– Preparing to fulfil theNational Ports Authority’s

functions as set out in theNational Ports Act, includingthe introduction of newsystems for controlling portservices through agreements,licences and permits, and formanaging port property;

– Preparing revised port rulesto be issued in terms of theNational Ports Act; and

– Preparation for economicregulation of the ports by thePorts Regulator.

• Enhancing National PortsAuthority’s market position as acompetitive international portsmanagement entity throughstrategic value-add initiatives.Strategic imperatives in thisregard include:– Implementing National Ports

Authority’s portal,PortsOnline;

– Refining customer deliveryand improving customersatisfaction;

– Establishing customer servicecentres at all ports; and

– Implementing a real estatestrategy.

Risk managementNational Ports Authority’ riskmanagement process is alignedwith the ERM framework, whichprovides for a holistic andconsistent approach to theidentification, assessment, controland management of risks.

National Ports Authority therebyseeks to manage all risks byutilising opportunities to createbenefits while effectively managingthe potential downsides, thereforeensuring that shareholder value isenhanced.





32%

68%

Non-BEE procurement R700 million


DEVELOPING WORLD-CLASSINFRASTRUCTUREPort infrastructureNational Ports Authority’sperformance is underpinned byglobal trends and demands thatnecessitate the continuous upgradeand provision of infrastructurecapacity and increased performancelevels. World-class engineeringtechnology, provision, maintenanceand timely replacement enable thisservice delivery.

Apart from the high standards setfor National Ports Authority’sengineering technology, thedivision places emphasis onmethodologies and goals formeasuring infrastructuremaintenance as set out in theInfrastructure Maintenance Manual(IMM). Maintenance programmes areprepared and approved at port

level. Risk management focuses onsafety, infrastructure availability,appearance, reliability, legalrequirements, life-span and cost.

Capital investmentCapital spending for the yearamounted to R1 026 millioncompared to R783 million in theprevious year.

Whilst capital spending hasimproved compared to the previousyear, the business experiencedseveral setbacks. These includeEIA challenges with regards toexpanding the container terminalin Cape Town and delays in settlingdispute claims for the Port ofNgqura.

The capital expenditure for the nextyear includes:

Key risks at National Ports Authority National Ports Authority’s planned response

Regulatory risk Alignment with the requirements of the National Ports Act through keystakeholder engagement on policy matters.Ensuring that National Ports Authority fulfils its function as a landlord.

Existing capacity constraints Providing port infrastructure capacity ahead of demand by deliveringcapital projects on time.Increase asset utilisation.Measuring and monitoring the performance of port operators and serviceproviders to ensure an efficient and effective port system.

Operational safety Continuously review the standard operating procedures for relevance,adequacy and effectiveness.Implement business continuity management for emergencies and regulartesting of contingency plans.

Skills development and retention Ensure retention of critical skills such as procurement, projectmanagement, commercial and engineering through the implementationof the talent management framework.Roll-out of training by the Port Academy.

ENGAGING OUR STAKEHOLDERSFOR MUTUAL BENEFITIn line with the greater demandfrom stakeholders for corporateaccountability, National PortsAuthority honours itsresponsibilities towardsindividuals, the environment andthe communities within which itoperates.

As part of the Transnet SustainabilityPlatform the National PortsAuthority Sustainability SteeringCommittee plays a key role inidentifying both stakeholders andprinciple-issue areas.

Understanding the expectationsof different stakeholders andengaging with them throughregular, open communication andconsultation, remains the basis forNational Ports Authority’s decision-making.

Projects R million

Widening and deepening of

Durban entrance channel 545

Pier 1 resurfacing and berth

deepening: Durban 412

Acquisition of Salisbury Island

for future port expansions 300

Y Site – Durban container

terminal 110

Purchase of two tugs: Durban 95

Construction of Port Ngqura 287

Operationalising of

Ngqura for containers 454

Expansion of Cape Town

container terminal 466

Saldanha IOT execution

Phase 1B expansion

(1 to 47 mtpa) 111

Security Phase 2: All ports 108

Other projects 1 061

Total 3 949

National Ports Authority hasplanned for the following majorcapital expenditure over the nextfive years:

Port R million

Richards Bay 826

Durban 7 633

East London 40

Ngqura 4 679

Port Elizabeth 33

Mossel Bay 17

Cape Town 3 798

Saldanha Bay 260

Marine services 1 000

Other projects 249

Total 18 535

NATIONAL PORTS AUTHORITY CONTINUED


4 000

3 500

3 000

2 500

2 000

1 500

1 000

500

02006

Capital expenditure

2007 2008

783

1 02

6

3 94

9

Information and communicationstechnologyNational Ports Authority hasinstituted policies to govern logicalaccess, security, change control anddisaster recovery. During the yearNational Ports Authorityparticipated in the TransnetBusiness Intelligence (TBI) Projectaimed at defining a frameworkwhereby management couldsignificantly enhance the value ofinformation in the Transnet Group.

The goals for the next reportingcycle include:• Reconfiguring and integrating

ICT platforms by implementinga web portal;

• Developing a seamless internalinfrastructure logisticssolution;

• Ensuring compliance withsafety, security andenvironmental standards;

• Meeting PFMA and IFRSreporting requirements;

• Centralising IT and IToperations demand to optimiseeconomies of scale;

• Simplifying National PortsAuthority’s infrastructure andadhering to Group hardware,operating systems andinformation standards toreduce cost;

• Improving the productivity ofIT employees through thereengineering of IT processesand standards;

• Implementing a strategicenterprise management moduleat National Ports Authority inline with National PortsAuthority’s strategic initiatives;

• Reviewing, designing,implementing and enforcing aneffective National PortsAuthority IT sourcing strategy;and

• Consolidating and sharinginformation services acrossoperating divisions to bettermanage risks and maximiserevenue opportunities.

CREATING A WORKPLACE WHEREOUR PEOPLE CAN EXCELPeople managementEmployee numbers decreased by1% during the year. The totalstaff complement amounts to3 251 employees, excludingcontract workers.

Employment equityNational Ports Authority iscommitted to employment equity.In National Ports Authority,employment equity does not happenin isolation but is an integratedactivity and is implemented withinthe Transnet HR strategy, with moreemphasis on talent managementand capacity development. Theframework to guide employmentpractices is achieved through theEmployment Equity Act. In NationalPorts Authority black employeesconstitute 68% of the total staffcomplement. National Ports


succession planning in theinfrastructure environment.

Skills 2007 2006

development R million R million

Training, bursaries

and grants 29 23

% of payroll costs (%) 3,7 3,4

Talent managementThe roll-out of the Group humanresource strategy gained momentumduring the year, with talentmanagement initiatives forming thefoundation for targeted leadershipdevelopment programmes.

Performance and rewardNational Ports Authority isdedicated to developing aperformance management andreward system that drives a highperformance culture; is aligned withthe current Transnet performanceand reward programme and,handles non-compliance matters.The system will assist in managingpoor performers and build a

sustainable organisationalperformance culture.

To actualise this commitment, allNational Ports Authority employeesparticipate in biannual performancediscussions and non-performersundergo a performance improvementprocess for six months. In-housetraining also plays a pivotal role inimproving employee performance.

Human resource enablementIn the year ahead renewed emphasiswill be placed on integrating theSAP HR software, which forms thebackbone of National PortsAuthority’s human resourcemanagement systems.

Employee relationsNational Ports Authority leadershipis consciously aware of the risksand disruption associated withlabour unrest. Every effort is madeto comply with the LabourRelations Act and to open channelsfor employee involvement indecision making.



Management 28 89 134 161 31 91 193 341 16 358 209 699 908

Non-managerial 38 107 228 939 102 260 368 1 306 85 584 453 1 890 2 343

Total – 2007 66 196 362 1 100 133 351 561 1 647 101 942 662 2 589 3 251

2% 6% 11% 34% 4% 11% 17% 51% 3% 29% 20% 80% 100%

Management 16 60 74 99 24 41 114 200 18 288 132 488 620

Non-managerial 90 160 222 950 140 312 452 1 422 143 599 595 2 021 2 616

Total – 2006 106 220 296 1 049 164 353 566 1 622 161 887 727 2 509 3 236

3% 7% 9% 33% 5% 11% 17% 51% 5% 27% 22% 78% 100%

F = Female M = Male

Authority’s female profile is 17%with 59% of management cadrerepresented by black managers ofwhom 23% are women.

Skills developmentWhilst the availability of criticaland scarce skills remains achallenge for National PortsAuthority, the business hasimproved trainee requirements andis expanding the trainee pipeline.Skills development remains astrategic priority for theorganisation, with a focus onbuilding National Ports Authority’smarine operations and engineeringcapabilities. This is particularlyevident in the successfulimplementation of the integratedmarine pilot training programme,which is administered inassociation with a Netherlands-based partner institution, STC(Shipping and Transport College).The introduction of engineeringcareer ladders has resulted in atargeted approach to bothemployee development and

Employee wellness and HIV/AidsNational Ports Authority has acomprehensive workplace healthprogramme in place, focusing onoccupational health and primaryhealthcare. It also offers a serviceto help employees manage personaland work related problems thatcould negatively impact theirperformance.

Occupational health and primaryhealthcare programmeThe occupational health and primaryhealthcare programme relates tomedical surveillance; appropriatestaff placement and, ongoingmaintenance of employee health.

Employee assistance programme(EAP)The employee assistanceprogramme (EAP) supportsemployees with personal and workrelated problems that adverselyaffect their performance. The EAPoffers confidential services thatprovide proactive and reactiveskills assistance for self-management. Consultation isprovided to line management andlabour to assist in dealing withtroubled employees.

HIV/Aids management programmeThe HIV/Aids Programme focuseson HIV as a chronic condition. Toachieve lasting control over newinfections within the Company.National Ports Authority isimplementing an Aids ManagementSystem (AMS 16001), whichformalises activities to reviewcurrent practices. This system wasdeveloped as a response to an



internationally recognised HIVmanagement standard and willapply only to those HIVdeterminants which theorganisation can control andinfluence. With introduction of thissystem, National Ports Authoritywill be able to improve itsmanagement of HIV-related risks aswell as improve sustainability andbusiness performance.

Employee safetySafety at National Ports Authorityis governed by the SHEQ policy inthe interests of employees and thepublic (for public safety referpage 115).

National Ports Authority is in theprocess of integrating SHEQmanagement systems across thevarious ports. These include: EMSISO 14001, OHSAS 18001 andAMS 16001 and are aimed atminimisation of risk impacts andfacilitation of the continualimprovement of performancequality. Systems are continuously

monitored to facilitate properimplementation and ongoingimprovement.

During the year, National PortsAuthority performed within setSHEQ targets and was fullycompliant with the Safety Act. Inaddition, National Ports Authorityreceived several Transnet SafetyCompetition Awards as well as theacclaimed NOSA platinum five-stargrading.

CARING FOR THE COMMUNITIESWHERE WE OPERATECorporate social investment (CSI)National Ports Authority embarkedon various social investmentinitiatives within communities closeto each port, with a primary focuson education, environmentalmanagement and HIV/Aids.

EducationNational Ports Authority’seducational initiatives focus onschools that offer maritime studies.National Ports Authority’s



National Ports Authority employee fatalities 2007 2006 2005

Fatalities on premises (suicide excluded)Injuries 1 – 2Diseases – – –Road traffic (public roads) – – –

Total 1 – 2


Public fatalities

2007 2006 2005

Fatalities on

premises (criminal

activity and

suicide excluded) 3 1 1

Road traffic

(public roads) – – –

Total 3 1 1

MANAGING OUR ENVIRONMENTRESPONSIBLYEnvironmental managementAll ports started developing andimplementing the EnvironmentalManagement System (EMS ISO14001) as early as 2002 and mostreceived certification by 2005.

The EIA process at National PortsAuthority forms an integral part ofany planned development withspecific emphasis on engagementof interested and affected parties.

During the year, NPA supportedprogrammes linked to the NationalMarine Week, allowing othercommunity-based organisations toco-host programme events.

involvement ensures thatcommunities benefit by improvinglevels of mathematics and sciencefor students and teachers.

HIV/AidsNational Ports Authority’s HIV/Aidsawareness initiatives supportcommunity organisations thatprovide services and care toHIV/Aids infected communitymembers. During the year NationalPorts Authority made a once-offdonation of five vehicles todifferent communities. Non-monetary assistance byvolunteering National PortsAuthority employees served theseorganisations as part of thecorporate social investmentprogramme.

Community impact and publichealth and safetyNational Ports Authorityis consciously aware of theimportance of monitoring andmanaging the impact of operationson the communities in which itoperates. Public health and safety,therefore, forms an integral part ofrisk management.



PROSPECTSCommitting to stakeholder valueDuring the year, South Africaexperienced a business cycleupswing. This trend is expected tocontinue into the new year. NationalPorts Authority expects thatperformance in the containerisedcargo market (full import andexport) will grow by 8% in thecoming year, with the market forempty containers growing at 15%.These expectations are predicatedupon the following key assumptions:• Continued positive economic

climate and a stable exchangerate;

• The maintenance of real growthin household consumptionexpenditure of 6% well intothe next year;

• An achievement of bulk cargogrowth of 4%, mainly driven bycoal and iron ore exports; and

• An expected growth of morethan 10% in vehicle importsand exports.

National Ports Authority expectsthat business growth within theport system will be attainedthrough improved collaborationand planning of operations that arefocused on productivity monitoringand performance measurement, asagreed with other port users andservice providers within the portsystem.

In the coming year, National PortsAuthority will focus on thefollowing initiatives to support theabove market opportunities:• Rolling out specific targets and

measurements of vesselchangeover times to otherports. These will be based onresults attained at the port ofDurban through the Vulindlelainitiative;

• Accelerating capital investmentin port infrastructure;

• Ensuring that National PortsAuthority fulfils its statutoryfunctions as landlord, masterplanner, controller of portnavigation, and controller ofport services and port facilities;

• Implementing the ship repairstrategy;

• Developing marine operationslearnership and skillsprogrammes;

• Aligning National PortsAuthority’s business operationsto fulfil its functions set out inthe National Ports Act; and

• Preparing for economicregulation.


National Ports Authorityowns and manages the

seven ports in SouthAfrica: Saldanha, CapeTown, Mossel Bay, Port

Elizabeth, East London,Durban and Richards Bay


Port Terminals handled a record 3,4 million TEUs (20 foot equivalent units) in the previous year – 13% higher than last year


Revenue up

14% toR4,1 billion

EBITDA up

31%


Transnet Port Terminals doubled investment in capital equipment to R1,7 billion during the year

R9,5 billion

Financial overviewYear ended Year ended

31 March 31 March2007 2006 %


Salient featuresRevenue 4 098 3 585 14EBITDA 1 561 1 193 31Depreciation and amortisation 336 267 26Operating profit 1 352 911 48Profit before taxation 1 323 893 48Net asset value 3 994 3 002 33Managed assets 4 570 3 231 41

Profitability measuresOperating margin (%) 33,0 25,4 30Return on net assets (%) 33,1 29,7 11Return on managed assets (%) 29,6 28,2 5

Capital expenditureTotal 1 740 776 124

EmployeesNumber of employees 5 049 4 853 4Revenue per employee 0,81 0,74 10


PORT TERMINALS continued

BUSINESS OVERVIEWTransnet Port Terminals (PortTerminals) manages 15 cargoterminal operations, situated acrosssix South African ports. With a staffcomplement of 5 049, PortTerminals is the dominant terminaloperator in each of these portsand interfaces with road and railtransport to provide an efficientand reliable service to a widespectrum of customers, includingshipping lines and cargo owners.

Port Terminals’s operations aredivided into four cargo sectorsnamely: container, dry bulk, break-bulk and automotive.

Performance highlightsThe following operationalachievements were recordedduring the year:• Durban Container Terminal

handled two million TEUs(20 foot equivalent units),compared to 1,7 million TEUsin the previous year, an increaseof 18%;

• Port Terminals has madesignificant progress indeveloping a second containerterminal in Durban (Pier 1),which commenced operations inMay 2007. The terminal will befully operational, with an annualcapacity of 720 000 TEUsby December 2007;

• There has been a noticeableimprovement in safety

standards and workingprocedures across all of PortTerminals’s operations, with anumber of operations achievingNOSCAR status and/or ISO14001 compliance;

• Port Terminals’s intention toprovide customers withimproved operationalperformance and to createcapacity ahead of demand wasevidenced by its investment incapital equipment and projectsamounting to R1 740 million(more than double that of theprevious year). Altogether 51%of the investment was allocatedto expansion projects;

• Due to the continued growth incontainer traffic, coupled withunusual weather conditions,Port Terminals experienced aperiod of severe congestion atthe Durban container terminal.The problem was satisfactorilymanaged and the threat of acongestion surcharge did notmaterialise; and

• During September 2006, aportion of the Saldanha shiploader structure suffereda structural failure thatresulted in export operationsbeing halted for a period of19 days. The fact that the plantwas restored within a 19-dayperiod was a tremendousachievement and this wasfollowed by record loadingperformance to fully catch upthe backlog by December 2006.

ACHIEVING RETURNS GREATERTHAN THE COST OF CAPITALFinancial managementFinancial performanceRevenue increased by 14% year-on-year. Profit before taxationimproved year-on-year by 48%. Thecurrent year’s profit was positivelyaffected on by fair-valueadjustments (R135 million) arisingfrom forward exchange coverpurchased to meet foreigncommitments for the acquisitionof container handling equipment.

The containment of percentagecost increases, to less than that ofrevenue growth resulted in theoperating margin increasing from25,4% to 33,0%, also impacted onby the abovementioned adjustment.

Marketplace and customermanagementPort Terminals is committed tobecoming a customer-centricorganisation, with significantprogress having been made inentrenching this new organisationalculture. A customer survey thatdetermines existing customerperceptions has been completedand the results indicate that acustomer-centric culture is vitalto the future of Port Terminals.

A customer segmentation processhas been completed, whichdifferentiates customers intothree distinct segments: strategic

KEY PERFORMANCE INDICATORS (KPIs) – PORT TERMINALS


FinancialRevenue (R million) 4 052 4 098 Achieved 4 740 16EBITDA (R million) 1 635 1 561 Not achieved 1 844 18InfrastructureCapital expenditure (R million) 1 415 1 740 Achieved 3 136 80EfficiencyMoves per crane hour – Durban container terminal 20 17 Not achieved 22 29

– Cape Town container terminal 20 21 Achieved 20 –

Moves per ship hour – Durban container terminal 32 33 Achieved 35 6– Cape Town container terminal 33 33 Achieved 33 –

Tons loaded per hour – Iron ore terminal 4 349 3 951 Not achieved 4 900 24

Tons loaded per hour – Richards Bay dry bulk terminal 817 711 Not achieved 750 5Tons unloaded per hour – Richards Bay dry bulk terminal 508 502 Not achieved 525 5


customers, key customers and adhoc customers. Service offeringsare adapted to suit customerneeds. In addition, structures havebeen implemented to provideeffective customer service bothfrom head office and the terminals.

Port Terminals has launchedcustomer engagement and changemanagement processes, based onthe input from strategic customers.It is anticipated that theseprocesses will result in improvedservice delivery to customers inaccordance with customer needsand requirements.

A call centre has been implementedand is processing 8 000 calls permonth.

Operations managementDuring the year, the containersector handled 3,4 million TEUsversus 3,0 million TEUs in the prioryear – a 13% increase. Thisincrease was achieved despitethe capacity and performancechallenges experienced duringthe peak season.

The closure of Pier 1 containerterminal in Durban for the fasttrack development of a fully-fledged container terminal did nothave a negative impact on capacitydue to the use of the multi-productberths to supplement the containercapacity in Durban. Pier 1 is nowfunctional.

The operations performance of allcontainer terminals showed markedimprovements with previousrecords for “volumes handled per

day” being exceeded. The Vulindlelaproject and operations training bySri Lankan trainers has contributedto an improved performance atDurban Container Terminal (DCT)and has laid the foundation forfurther productivity improvementin the next year. The containerterminals in Port Elizabeth andCape Town experienced high growthin reefer container volumes andachieved an average handlingperformance of 22 container movesper gross crane hour.

The volume handled in theautomotive sector increased to558 218 units, an 18% increasecompared to the previous year.This was due to favourable marketconditions, with GDP growth andrelatively low interest rates creatinghigher than expected demand forlower- to middle-priced importedvehicles – imports account for 68%of the total volumes.

The Durban car terminal, which isexperiencing serious capacityproblems in accommodating theincreased volumes, retained itsfive-star NOSCAR rating for thesixth year in succession.The effectiveness of the value-added activities in the terminalsof Port Elizabeth and Durban is apositive step towards theachievement of an integratedservice offering to originalequipment manufacturers (OEMs).

The multi-purpose sector volumeswere 4% higher than the prior yeardue to a general increase in demandfor imported commodities. Exportvolumes experienced a small

decline, mainly due to a drop in theexport of steel products as a resultof the increased local consumptionthereof. The increase in volumethrough the Richards Bay multi-purpose terminal has assisted inthe achievement of a welcometurnaround in the financialperformance of this terminal.

Bulk volumes were negativelyimpacted on by a 25% reduction inwoodchip exports through RichardsBay due to shortage of supply andlower than expected magnetiteexport volumes, also throughRichards Bay, due to difficulties insecuring sufficient rail transportto the port. Despite the above, thesector achieved a 2% growth involume. A significant portion ofthe planned capital expenditure isaimed at increasing the capacityin this sector.

Supply management and BBBEEPort Terminals abides by Transnet’sBBBEE policy as outlined inTransnet’s detailed procurementprocedures (DPP) and will complywith the Department of Trade andIndustry (DTI) codes of goodpractice 500 and 600 as well asthe DTI’s BEE scorecard. Thecertification of BEE companieswill be done through credibleaccreditation companies thatcomply with the DTI’s codes ofgood practice.

Port Terminals will also engage inenterprise development initiativeswhere emerging suppliers and blackemerging micro-enterprises (EMEs)will be taken through a process ofskills transfer and development,



enabling them to participate in thewider economic activity of thecountry. Port Terminals’ suppliermanagement strategy alsoincludes annual awards forsuppliers that have shownsignificant transformation. Theseinclude black EMEs that have mostimproved performance andsuppliers that have implementedsuccessful joint ventures andstrategic alliances.

During the year, Port Terminalsspent 44% of its total procurementexpenditure with BEE suppliers.

ASSURING SOUNDACCOUNTABILITY ANDGOVERNANCEIn accordance with the King II Codeof Corporate Governance, theCompanies Act and the PublicFinance Management Act (PFMA),Port Terminals adheres to goodcorporate governance and riskmanagement as a key businessobjective. As such Port Terminalshas established a business risk andcorporate governance portfoliowithin the organisation, with anexecutive level reportingframework. Other key governancestructures include theestablishment of a ComplianceOfficer function, CorporateGovernance and Policy Committeeand Risk Management Committeesat strategic and operational levels.

Port Terminals embarked on severalinitiatives to enhance its corporategovernance premium. Theseinitiatives included:• Implementing the Transnet

Fraud Prevention Plan;

as an efficient and costcompetitive operator; and

• Creating a performancemanagement culture and skillsbase that enables the executionof Port Terminals’ businessplan.

The Port Terminals managementteam has developed clearinterventions that will deliver theabovementioned objectivesand ensure that the business isfully aligned to, and supports, theoverall vision and objectives ofTransnet as outlined in theCorporate Plan.

Risk managementAt Port Terminals an Enterprise-wide Risk Management (ERM)Framework has been adopted andimplemented at both strategic andoperational levels. The ERMframework helps inculcate vigilantrisk management.

The risk methodology comprisesrisk identification, assessment,control and response, riskgovernance and, monitoring andreporting. The framework providesdiscipline and structure for riskmanagement within Port Terminalsand aims to improve performancemeasurement by monitoring keyrisk indicators and managing riskmitigation/treatment plans.

• Institutionalising fraudprevention and corporategovernance trainingprogrammes;

• Rolling-out the Company’s Codeof Ethics;

• Promoting the use of the FraudHotline to employees, suppliersand customers;

• Communicating key messagesto employees at an operationallevel through industrial theatre;and

• Developing a policy andprocedures manual.

No material corporate governancebreaches occurred. In all instanceswhere non-conformances have beenidentified, appropriatemanagement action has been taken.

Strategic directionPort Terminals’ strategic objectivesinclude:• Entering into strategic

partnerships to exploit newcommercial opportunities thatgrow the Port Terminalsrevenue base;

• Understanding customerrequirements and translatingthese into consistent andpersonalised service offeringsthat exceed customerexpectations;

• Creating capacity ahead ofdemand;

• Containing increases inoperating costs per unit ofvolume at less than the CPIXcost increase;

• Maintaining Port Terminals’market dominance by ensuringthe organisation is recognised



44%

56%



Key risks at Port Terminals Port Terminals’ planned response

Existing capacity constraints Aligning capacity with customers’ needs and demands.Creating capacity ahead of demand through timeous capital investment.Optimising asset utilisation.

Regulatory risk Mitigating risks associated with the impact of the regulatory environmenton the commercial activities of Port Terminals through engagement withkey stakeholders.Compliance with relevant laws, standards and rules.

Efficient service delivery Matching the productivity of all operations, measured in throughput unitsper hour, with that of leading international terminal operators.Integrating Transnet service offerings along mainstream corridors to unlockthe competitive advantage.Investing in people, systems and equipment to ensure efficient servicedelivery.Ensuring that service levels exceed the expectations of customers.

Operational safety Creating and enforcing the culture of a safe working environment throughtraining, discipline and consequence management.Pursuing ISO certification and rewarding excellent safety performance.

Human capital constraints Attracting and retaining employees with appropriate competencies anda high-performance work ethic through appropriate remuneration andincentive schemes.Roll-out of the Talent Management Framework.

ENGAGING OUR STAKEHOLDERSFOR MUTUAL BENEFITDuring the year theCommunications Committee playeda key role in identifyingstakeholders and principle issues,as part of the roll-out of the PortTerminals Sustainability Platform.Port Terminals’ efforts have beenfocused on improving employeedevelopment, rallying strategicstakeholders around theorganisation’s vision and promotingcustomer centricity.

Improving the reputation of theorganisation through strategicinitiatives and corporatecommunication has had a positive

affect on the supportive behaviourof stakeholders, which has in turnassisted in the achievement ofstrategic objectives.

In the year ahead Port Terminals willcontinue to strengthenrelationships with internal andexternal stakeholders throughtransparent communication.

DEVELOPING WORLD-CLASSINFRASTRUCTUREPort infrastructureThe planning and development ofport infrastructure is undertaken ona coordinated basis across Transnetto ensure that the capitalinvestment programme of divisions

such as Port Terminals, Freight Railand National Ports Authority isaligned across the operations andwith the needs of the economy.Economic growth forecasts,coupled with the need to upgradeexisting infrastructure,have necessitated an extensiverefurbishment, replacement andexpansion programme which is fullybudgeted for within the TransnetCorporate Plan.

Capital investmentCapital spending for the yearamounted to R1 740 millioncompared to R776 million in theprevious year.



3 500

3 000

2 500

2 000

1 500

1 000

500

02006

Capital expenditure

2007 2008

776

1 74

0

3 13

6

Significant areas of expenditure forthe year included:• The replacement and expansion

of equipment capacity (cranesand straddle carriers) at thethree existing containerterminals: R427 million;

• The construction of a newcontainer terminal in Durbanat Pier 1: R399 million;

• The refurbishment andexpansion of the iron oreexport facility at Saldanha Bay:R372 million; and

• The refurbishment andexpansion of the Richards BayBulk terminal: R209 million.

Port Terminals will implement arobust capital expenditureprogramme over the next five yearsto ensure capacity is created aheadof demand and that productivity isimproved.

The approved capital expenditurefor the next year is R3,1 billion:

Projects R million

New container terminal at the port of Ngqura 659Saldanha iron ore terminal expansion 544New container terminal at Durban’s Pier 1 481Cape Town container capacity expansion 229Richards Bay dry-bulk terminal refurbishment and upgrade 135Refurbishment of manganese export facility – Port Elizabeth 120Durban container terminal 100Other 868

Total 3 136

Port Terminals has planned for thefollowing major capital expenditureover the next five years:

Projects R million

New container terminal at the port of Ngqura 1 466Saldanha iron ore Terminal expansion 2 894New container terminal at Durban’s Pier 1 594Cape Town container capacity expansion 382Richards Bay dry-bulk terminal refurbishment and upgrade 732Refurbishment ofmanganese export facility – Port Elizabeth 295Durban container terminal 286Port Elizabeth container terminal – equipment replacement 294Other projects 2570

Total 9 513


Information and communicationstechnologyPort Terminals continues toparticipate in the Transnetprogramme to reengineer itstechnology enablers and systemsas part of the broader three-yearbusiness reengineering programmewithin the Group. The two mainobjectives from an information andcommunications technology (ICT)perspective are to reduce overallICT expenditure across the Groupand to align new investment in ICTwith leading practice.

Port Terminals’ informationtechnology landscape is largelymodernised and uncomplicated.The interactive website(www.saponet.com) launched in2003, is widely used by industrystakeholders for on-line containertrack and trace, and records inexcess of 450 000 hits per month.

ICT challenges at Port Terminalsinclude the need to further reducethe amount of paper documentation

disadvantaged employeesconstituted 77% of the PortTerminals staff complement.

Skills development and talentmanagementThe high turnover rate within keyleadership positions coupled withan ageing workforce required focusto be directed at the need for skillsdevelopment and successionplanning during the year.

Emphasis was placed on developingexecutive management and shopfloor competencies as well asgraduate placements, particularlyin the fields of engineering andfinance.

Operational and technical trainingwas also a key focus area for theyear. One of the key traininginitiatives of the year was theappointment of a Sri Lankan-basedtraining company, PMCS to assistPort Terminals with operationaltraining at the Durban ContainerTerminal. This is expected to result

required in the cargo import andexport industry through the use oftechnology. A key focus is to simplifydocumentation usage and toprovide an electronic interchangebetween all parties. This will reducethe effort of processing shippingdocumentation as well as the overallcost of doing business in the freighttransport sector.

CREATING A WORKPLACE WHEREOUR PEOPLE CAN EXCELPeople managementPort Terminals’ staff complementincreased from 4 853 permanentemployees in 2006 to 5 049permanent employees in 2007

Change, transformation and cultureThe Transnet culture blueprint iscurrently being developed and isscheduled for implementationduring the course of the next year.

Employment equityPort Terminals is committed to itspolicy of employment equity. As atMarch 2007, previously-



Management 20 35 34 68 13 24 67 127 21 77 88 204 292

Non-managerial 48 352 352 2 448 94 397 494 3 197 119 947 613 4 144 4 757

Total – 2007 68 387 386 2 516 107 421 561 3 324 140 1 024 701 4 348 5 049

1% 8% 8% 50% 2% 8% 11% 66% 3% 20% 14% 86% 100%

Management 17 36 48 61 15 19 80 116 16 84 96 200 296

Non-managerial 33 345 254 2 481 69 412 356 3 238 106 857 462 4 095 4 557

Total – 2006 50 381 302 2 542 84 431 436 3 354 122 941 558 4 295 4 853

1% 8% 6% 52% 2% 9% 9% 69% 3% 19% 12% 88% 100%

F = Female M = Male



in improved container loading ratesin the future.

A framework has been developedto facilitate the achievement ofskills development objectives.One of the deliverables was theimplementation of a talent planningprogramme, which involves theidentification of mission-criticalpositions and the existing talentwithin those positions. This hasresulted in the detection of gapsin critical skills within theorganisation. The focus for the nextyear will be the development ofmission critical talent to close thesecritical skills gaps.



The key resource challenges in thecoming year continue to be:• The increase in skills gaps as a

result of changing technologyand work methods;

• The ‘high age’ profile within thetechnical and operationalcadres; and

• The lack of specialist skills andtechnical competence in criticalareas.

One of the techniques ofaddressing the skills shortageswithin Port Terminals is theimplementation of project teams

which focus on the filling of criticalvacancies within the organisation.

Performance and rewardPort Terminals is committed to fairremuneration. Remuneration islinked to performance appraisal,thereby creating a workplace inwhich employees can excel. Duringthe year, the new Transnetperformance Management Policywas implemented. Career planningwill be one of the key focus areasduring the next reporting cycle anda process is in place to ensure thateach employee has an individualdevelopment plan.

Human resource enablementWorkplace design and human-capital development have beenstrong focus areas during the year.Port Terminals is guided by itslegislative framework, including theBasic Conditions of EmploymentAct, the Occupational Health andSafety Act and the LabourRelations Act. The outputs ofthe corporate organisationdevelopment process include theoptimisation of structures, jobevaluation, a performance drivenremuneration model and businessprocess reengineering.

Employee relationsIn addition to disciplinary,grievance and dispute resolutionmechanisms already in place, thedivision is close to finalising afacilitated document on co-operative relationships with labour.Worker cooperatives are beingstructured, which will assist with

additional or alternative humanresources during periods of highvolumes, additional demands orindustrial action.

The training of line managementon employee-relations skills andpractices are ongoing. This ensuresappropriate management ofdisciplinary procedures andgrievances in the workplace.

Employee wellness and HIV/AidsEmployee wellness is a corestrategic focus at Port Terminalsand goes beyond legislativecompliance. The Port Terminalshealth management programme hasresulted in mutual benefit for theorganisation and its stakeholders interms of the early detection ofhealth problems, prolonged worklife of employees and absenteeismmanagement.

Port Terminals has adopted a risk-based approach to HIV/Aidsmanagement. External experts havebeen engaged to identify therelevant risks and to recommendappropriate actions.

The planned actions for the yearahead are:• Increasing the availability of

testing to promote theawareness of each employee’sHIV/Aids status;

• Encouraging employees toenrol in Port Terminals disease-management programme toparticipate in antiretroviraltreatment; and


SHEQ performance Target Actual Actual Actual

Indicator 2008 2007 2006 2005


Port Terminals employeefatalities 2007 2006 2005

Fatalities on premises (suicide excluded)Injuries 5 4 2Diseases – – –Road traffic (public roads) – 1 –

Total 5 5 2

• Intensifying HIV/Aids-relatededucation and traininginitiatives within Port Terminals.

Employee safetyPort safety at Port Terminals has adirect impact on employees and thepublic (for public safety referbelow) and management iscommitted to the rigorousimplementation of an integratedSHEQ management system. Steadyprogress has been made towardsachieving ISO certification in allterminals.

A comprehensive security strategyhas been implemented at allterminals to attain a safe andhazard-free operating environment.All terminals are ISPS (InternationalStandard Port Facility Security)code compliant.

Safety standards and associatedtraining in the workplace haveresulted in a workforce that is moreaware of safety issues and theconsequences of non-compliance.

Disabling injuries and fatalities arean unacceptable occurrence andSAPO is saddened by the incidentsthat took place during the year. PortTerminals is working towards zeroincidents.

CARING FOR THE COMMUNITIESWHERE WE OPERATECorporate social investment (CSI)Port Terminals strategically alignsCSI initiatives with broad businessobjectives. During the year our CSIactivities supported a key businessobjective: further entrenching thebrand. This was achieved throughvarious CSI initiatives such asentrepreneurial development,

poverty and hardship alleviation,disaster relief, HIV/Aidsinterventions and support forartistic and cultural development.

Community impact and publichealth and safetyPort Terminals operations handlea wide range of commoditiesincluding hazardous, toxic andradioactive substances. Theprocess of loading and unloadingbulk products such as grain, ironore and woodchips all present theirown challenges from health andenvironmental perspectives. Noise,dust, general pollution andvehicular traffic all impact onsurrounding communities.

Port Terminals is committed tomanaging social impacts resultingfrom its operations. This includesthe minimisation of noise duringoperations, the reduction of dustduring discharge or loading and thereduction of pollution. Legislativecompliance in itself results in thereduction of social impact.

Port Terminals deems disablinginjuries and loss of life to beunacceptable. As such theorganisation is committed to thereduction of accidents andfatalities impacting on the public.

Public fatalities2007 2006 2005

Fatalities on premises(criminal activity andsuicide excluded) 1 2 4Road traffic (public roads) – – –

Total 1 2 4



MANAGING OUR ENVIRONMENTRESPONSIBLYEnvironmental managementPort Terminals has implemented theNOSA Management System, the ISO14001 Environmental ManagementSystem and the ISO 9001 QualitySystem. The process of systemcertification is in progress and willremain priority during the next year.

Port Terminals is committed tofurther mitigating the negativeimpact caused by the nature ofcertain cargo types passingthrough the operations. Theconstant revision and refinementof environmental managementpractices includes plant design,process reengineering, updatedtechnology and alignment withleading practice.

Environmental impact assessments(EIAs) are conducted in consultationwith all interested and affectedparties, including local communitiesand municipalities, when newdevelopments are planned.

PROSPECTSCommitting to stakeholder valuePort Terminals’ approved five-yearcapital expenditure plan providesfor the expansion of the capacityof the Saldanha iron ore terminalto 45 million tons and thecommencement of terminaloperations at the Port of Ngqura(container, bulk and break-bulk)by the end of 2008.

The accelerated construction ofthe new container terminal atDurban Pier 1, together withcapacity development at theDurban container terminal isexpected to provide capacity forcontainer traffic in excess of3,5 million TEUs through the portof Durban.

Growth prospects remain strong.Port Terminals expects that revenuewill double over the next five years.

The approved capital expenditureprogramme is aligned with itsgrowth forecasts and managementis confident that the organisationwill satisfy customer expectationsgoing forward.


The iron ore terminalat Saldanha is beingrefurbished at a costof R372 million


Transnet is investing nearly R10 billion to build the new multi-product pipeline between Durban and Johannesburg


R10 billion

EBITDA up8%


Pipelines’ network of pressure pipes pumps close to 17 billion litres of petroleum products and 14 million gigajoules of gas per year

Revenue up

15% toR1,2 billion

Financial overview Year ended Year ended31 March 31 March

2007 2006Restated %


Salient featuresRevenue 1 218 1 060 15EBITDA 931 860 8Depreciation and amortisation 259 237 9Operating profit 672 623 8Profit before taxation 444 372 19Net asset value 2 509 2 200 14Managed assets 4 068 3 409 19

Profitability measuresOperating margin (%) 55,1 59,0 (7)Return on net assets (%) 17,7 17,0 4Return on managed assets (%) 16,5 18,3 (10)

Capital expenditureTotal 310 220 41

EmployeesNumber of employees 483 448 8Revenue per employee 2,52 2,37 6


PIPELINES continued

BUSINESS OVERVIEWTransnet Pipelines (Pipelines), thepipeline operating division ofTransnet, owns and operates SouthAfrica’s 3 000 km of strategicpetroleum and gas pipelineinfrastructure, traversing fiveprovinces. Pipelines plays animportant role in ensuring thesecure supply of petroleumproducts in South Africa.

Performance highlightsPipelines recorded the followingoperational highlights duringthe year:• Revenue increased by 15% to

R1 218 million mainly due tovolume growth.

• Overall petroleum volumethroughput increased by 8,1%and gas by 14,6%.

• Pipelines commenced thefeasibility study for the newmulti-product pipeline andreceived Board approval tocommence with the project,provided certain risk mitigationconditions were met.

• Pipelines received its operatinglicence for the pipeline networkand Tarlton from the NationalEnergy Regulator of South Africa(NERSA).

ACHIEVING RETURNS GREATERTHAN THE COST OF CAPITALFinancial managementFinancial performancePipelines achieved revenue ofR1 218 million, indicating an overallimprovement of 15% compared tothe previous year. The improvedperformance is mainly attributableto volume-throughput increases.A 2,5% increase in tariffs wasapproved by DME in 2006.

Profit before taxation, therefore,increased by R72 million toR444 million mainly as a result ofthe higher revenue results detailedabove.

Marketplace and customermanagementPipelines’s clients consist of themajor oil companies operational inSouth Africa: BP, Chevron, Engen,Sasol Oil, Sasol Gas, Shell and Totalas well as the smaller local SouthAfrican Companies such as VuyoPetroleum. Products currentlytransported by Pipelines includegas, crude oil, aviation turbine fuel,diesel and various grades of petrol.

Pipelines acknowledges its clients’demanding service deliveryexpectations. Safety, flexibility,reliability and timeliness are criticalfactors in their businesses. As such,Pipelines continuously strives toimprove its service delivery to them.

For more than four decades,Pipelines has fulfilled the strategicrole of providing the South Africanoil industry with sufficient pipelinecapacity to meet the economy’spetroleum product and gastransportation requirements. Itcurrently transports approximately17 billion litres of petroleumproducts and 14 million gigajoulesof gas annually. The refinedproducts volumes conveyedthrough Pipelines’s pipelinenetwork is greater than 50% of theSouth African consumption.

Operations managementPipelines has successfully adoptedand converted to the ‘clean-fuels’

specifications and the entiresystem is now lead free. Therefractionator plant has beencompleted and Pipelines will nowbe able to reprocess theintermixture it generates in itsmulti-product system.

Because of market demand growth,the pipeline capacity betweenDurban and Gauteng needs to beaddressed until 2010, when the newmulti-product pipeline (NMPP)project is due to be completed. Assuch, Pipelines has formulatedappropriate activity plans thatinclude actions such as operationaloptimisation, transporting diesel inthe crude line and the injection ofdrag reducing agents to improve theflow rates.

Pipelines’s key performance anddistribution indicator, iemegalitre.km, showed animprovement on the previous year.This is mainly due to the increase involumes transported over the longerdistances (eg Durban to Gauteng).

Supply management and BBBEEPipelines’ procurement activitiesare fully supportive and aligned toTransnet Supply Management’s“flight plan”. Strategic sourcinginitiatives were implementedtogether with Supply Management,which created the opportunity forcost reductions in procurement ofmore than R4,69 million. Pipelinesactively supports preferentialprocurement, as is evident from thefact that 54% of discretional spendwas placed with BEE suppliers.

KEY PERFORMANCE INDICATORS (KPIs) – PIPELINES


FinancialRevenue (R million) 1 154 1 218 Achieved 1 376 13EBITDA (R million) 860 931 Achieved 995 7InfrastructureCapital expenditure (R million) 226 310 Achieved 900 190EfficiencyTotal operating costs per Ml.km of product conveyed (R) 43,46 38,63 Achieved 45,00 16


ASSURING SOUNDACCOUNTABILITY ANDGOVERNANCEPipelines is committed to adheringto sound corporate governanceprinciples of the King II Code ofCorporate Governance, theCompanies Act and the PublicFinance Management Act. Pipelinestakes a ‘zero-tolerance’ approachto fraud and corruption andsubscribes to the Transnet EthicsPolicy.

Strategic directionThe strategic objectives ofPipelines include:• Optimally managing the

strategic pipeline capacityowned and operated byPipelines.

• Planning, designing andcompleting the NMPP projectby the third quarter of 2010.

• Managing the overall processof regulation of gas andpetroleum pipelines andparticipating in theformalisation of additionalregulatory requirements.

• Successfully transforming theorganisation through theVulindlela project to ensurethe effective and efficientmanagement of human capitalto support a ‘new’ Pipelinesbeyond the commissioning ofthe NMPP.

• Ensuring a sustainable andlegally-compliant asset toprovide reliable andenvironmentally-responsiblebulk transportation ofpetroleum products.

• Ensuring that sustainablebusiness-support systems areimplemented and optimallyutilised.

Risk managementPipelines subscribes to goodcorporate governance and vigilantrisk management through thevigorous implementation of theholistic and consistent ERMFramework. During the yearPipelines committed the necessaryresources to embed and sustain theERM culture.

A strong emphasis on serviceintegration allowed Pipelines to

establish an appropriate resourcestructure, with the appointment of‘departmental risk champions’ forfull organisational representationand support.

The key risks are set out below. Itshould be noted that the tariffincrease application for a 5,6%increase was rejected by NERSA.This clearly poses a risk for theNMPP Project. However, theCompany is engaging with therelevant authorities to resolvethe issue.

Key risks at Pipelines Pipelines’s planned response

Regulatory risk – National Energy Continued engagement with Regulator of South Africa (NERSA), relevant stakeholders such as

NERSA to ensure alignment and compliance.

Environmental impact assessments Managing the environmental impact(EIAs) assessment process of the NMPP

project.Existing pipeline capacity Assessment and management constraints of customers’ future needs and

demands.Investment in NMPP capital project.Rolling out the bridging plan andother initiatives to addresscapacity constraints until the NMPPis commissioned.

Business interruption Ongoing review of BCM and disasterrecovery plans.Regular testing of all contingencyplans including crisis managementand communication strategy.



54%

46%


PIPELINES continued


ENGAGING OUR STAKEHOLDERSFOR MUTUAL BENEFITPipelines follows a businessapproach that is transparent,inclusive and accountable. Regularcommunication with all stakeholdersforms the basis for this approach.

Given a positive and optimisticforecast for the South Africaneconomy, coupled with the potentialoutcomes of AsgiSA’s acceleratedgrowth initiatives, Pipelines facesseveral critical challenges in thePetroleum industry.

Fuel facilitates economic growthand at present there are logisticaland infrastructural constraints totransporting adequate fuel to theeconomic heartland of the country.Pipelines’ NMPP, a R9,5 billioninvestment to be commissioned in2010, addresses this issue so asnot to constrain the economy.Pipelines also participates invarious forums, together with otherstakeholders, to address multipleconstraints associated with thepetroleum supply chain.

A bridging plan is being developedto address capacity constraintsexpected until 2010, when theNMPP will be commissioned. Allstakeholders are currentlycommitted to operationalisingthe plan.

DEVELOPING WORLD-CLASSINFRASTRUCTUREPipeline infrastructureThe Pipelines liquid fuels pipelinenetwork consists of four main lines,comprising the multi-productpipeline, the crude oil pipeline, thegas pipeline and the jet-fuelpipeline. The main lines cross fiveprovinces, namely: KwaZulu-Natal,Free State, Gauteng, North Westand Mpumalanga. The intakestations are based at the tworefineries in Durban (Sapref and

Enref); the crude refinery atCoalbrook (Natref) and, the synfuelplants at Secunda.

Pipelines is committed to providingand maintaining the assetinfrastructure through engineeringexcellence to enable the bulktransportation of petroleumproducts. To achieve this, Pipelines’shead office, its 15 intake and deliverydepots and its three workshops arecontinually geared towards providinga ‘high integrity’ set of assets. This isachieved by conforming to highinternational pipeline maintenancestandards.

Capital investmentCapital spending for the yearamounted to R310 millioncompared to R220 million inthe previous year. The capitalexpenditure for the year focusedon the following projects:• The NMPP project was initiated

to fulfil Pipelines’s mandate toincrease capacity to meeteconomic demand.

• The intermixture refractionatorwas initiated to meet therequirements of ‘clean fuels’legislation.

• The implementation oftelecontrol along the pipelinenetwork was accelerated.

• Inspections and integrityassessments of the pipelinenetwork were performed toensure a sustainable and legallycompliant asset.

The budgeted capital expenditurefor the next year includes:

Projects R million

NMPP 612Telecontrol phase II 45Telecontrol phase III 33NMPP bridging plan 20Other projects 190

Total 900

1 000

900

800

700

600

500

400

300

200

100

02006

Capital expenditure

2007 2008

R m

illio

n

220 31

0

900

Pipelines has planned the followingmajor capital investments over thenext five years:

Projects R million

NMPP 9 312Telecontrol phase II 45Telecontrol phase III 84NMPP bridging plan 92Other projects 427

Total 9 960

Information and communicationtechnologyPipelines is aligned to the TransnetBusiness Intelligence [TBI] Projectand its standards andrequirements. There will be arenewed quest for sound ICTgovernance in 2007. In the yearahead, Pipelines will focus onformulating action plans to ensurefurther system enhancements andeffective usage.

CREATING A WORKPLACE WHEREOUR PEOPLE CAN EXCELPeople managementOur staff complement, excludingfixed-term contractors, increasedfrom 448 to 483 during the year.

Change, transformation and cultureAs human capital is one of the fourpillars of the Transnet four-pointturnaround strategy, Pipelines hasfocused on the implementation ofleading practice human capitalframeworks and has implementedall seven of the Transnet HRstrategic initiatives.

Employment equityPipelines achieved its EmploymentEquity Plan and furthered theadvancement of women in thebusiness. As at February 2007, 71%of the Pipelines staff complementwas black.




Management 7 9 3 27 3 2 13 38 3 40 16 78 94

Non-managerial 6 15 68 193 7 5 81 213 10 85 91 298 389

Total – 2007 13 24 71 220 10 7 94 251 13 125 107 376 483

2% 5% 15% 46% 2% 1% 19% 52% 3% 26% 22% 78% 100%

Management 7 6 4 26 3 2 14 34 2 39 16 73 89

Non-managerial 6 14 57 181 6 4 69 199 10 81 79 280 359

Total – 2006 13 20 61 207 9 6 83 233 12 120 95 353 448

3% 4% 14% 46% 2% 1% 19% 51% 3% 27% 22% 78% 100%

Skills developmentPipelines renewed its focus onbuilding human capital capacity in2006. Greater emphasis was placedon retaining and expanding coretechnical and operationalcompetencies as well as addressingthe skills gaps and competencyrequirements in the business.


Training, bursaries and grants 5 7% of payroll costs (%) 4 6

Talent managementThe ability to attract and retain theright people with the appropriatecompetencies forms an integral partof our success. As such, considerablehuman capital planning in 2006resulted in employee talent beingappropriately harnessed andmanaged.

Interventions already implementedin support of the overall Transnetinitiatives include:• Identifying mission-critical

positions and addressing

associated succession-planningrequirements; and

• Developing organisationaltalent to ensure successionplans are implemented on time.

Performance and rewardPipelines management’sperformance is assessed annuallyaccording to performance objectives(SPOs) and key performanceindicators (KPIs). Incentive bonusawards are allocated annually basedon the overall financial performanceof Pipelines. Junior personnel areassessed according to an in-housesystem based on key result areasthat align with Transnet’sperformance and reward policy.

Human resource enablementPipelines will focus on the followingkey resource challenges in 2007:• Building capacity and retaining

core technical and operationalskills;

• Managing talent through theimplementation of targetedsuccession plans; and

• Sourcing the required skills inanticipation of employeegrowth needed beyond theNMPP project.

Employee wellness and HIV/AidsPipelines implements acomprehensive occupationalmedical surveillance programmewhich commences on recruitmentof employees and continues to risk-based periodic medicals until exitstage. This forms part of theintegrated SHEQ managementsystem at Pipelines. All operationsare assessed for potential healthexposures that could have anadverse impact on human health.

All employees have access to thelifestyle management programme.The programme was utilised by39 Pipelines employees in 2006.Other employee wellbeingprogrammes include theeducational assistance schemeand the professional counsellingprogramme, which is outsourced.Approximately 8% of Pipelines’employees utilised this counsellingservice during the year.

Employee safetyPipelines operations could havea direct impact on employee andpublic safety (for public safetyrefer page 136). Special attentionis paid to safety training toempower employees and toinculcate a safety culture withinour operations.

PIPELINES continued


During the year Pipelines focusedon reviewing and assessing therelevance, adequacy andeffectiveness of existing SHEQmanagement systems. This enabledthe operation to update existingcontrols and in particular thestandard operating procedures(SOPs).

In the coming year Pipelines willconcentrate on corrective effortsto achieve desired SHEQ standards.It aims to manage and operate all itsoperations in accordance withleading global practice such as ISO9001, ISO 14001 and OHSAS18001principles.

CARING FOR THE COMMUNITIESWHERE WE OPERATECorporate social investment (CSI)Pipelines participates in Transnet’sCSI programme, which deals withsocial investment in charitableinitiatives.

Community impact and publichealth and safetyPublic health and safety will alwaysbe of paramount importance toPipelines and forms part of theSHEQ management system. Duringthe year, the Servitude AwarenessCampaign promoted communityand landowner pipeline safety andemergency awareness. Urbanexpansion and communitydevelopment around the pipelineare closely monitored to ensurethat the integrity of the servitudeis maintained.

During the year Pipelines recordeda fatality related to an employee ofa previous security contractor whowas no longer contracted toPipelines. The deceased was on theJameson Park property withoutauthorisation.

MANAGING OUR ENVIRONMENTRESPONSIBLYEnvironmental managementOur technologically-advancedintegrity-management systemfacilitates the internal and externalinspection of the pipeline. Frequentpatrols of the pipeline servitudeand the monitoring of services anddevelopments close to and withinthe pipeline servitude are keyactivities. Public awarenesscampaigns as well as round-theclock-monitoring of the networkand an effective emergencyresponses plan enable quick andefficient responses should pipelineincidents occur.

Each depot, pump-station andworkshop has contingency plans inplace. Highly sophisticated spillresponse equipment and extensivedisaster management expertise arealso available to handle potentialincidents.

Pipelines conducts environmentalimpact assessments and consultswith all interested and affectedparties, including local communitiesand municipalities, when newdevelopments are planned.

During the year, Pipelinesexperienced no major pipelineincidents that harmed theenvironment.

SHEQ performance Target Actual Actual Actual

Indicator 2008 2007 2006 2005

Cost of risk as %of revenue (%) 2,40 2,60 1,60 1,86DIFR 1,00 1,24 1,00 1,29NOSA rating (%) 88,5 85 85 80

PROSPECTSCommitting to stakeholder valuePipelines will continue to focus onthe management of availablepipeline capacity so as to optimisethe cost-effective transport ofpetroleum products to Gauteng.

The finalisation and commencementof the NMPP is critically importantto meeting the increasing inlanddemand for petroleum products.The substantial R9,5 billion fundingrequired to construct the NMPPbetween Durban and Gauteng willrequire significant increases intariffs to make the projecteconomically viable.

It is essential that the requiredtariffs be agreed with the NationalEnergy Regulator of South Africa soas to achieve the revenue requiredto cover the cost of capital on theinvestment. Our prospects will bedirectly affected by the tariffdetermination methodology of theNational Energy Regulator of SouthAfrica which is still to be finalised.

Our ultimate goal is to be regardedas both the pipeline service providerof ‘first choice’ and the petroleumproducts transporter of ‘last resort’by all stakeholders, to the benefit ofthe South African economy.

Public fatalities 2007 2006 2005

Fatalities on premises(criminal activity andsuicide excluded) 1 – –Road traffic (public roads) – – –

Total 1 – –


Pipelines operates SouthAfrica’s 3 000 km ofstrategic petroleum andgas pipeline network

Pipelines focuses onskills development,emphasising retentionof technical operationaltalent

Construction of the new Ngqura Port, outside Port Elizabeth, with a two berth container terminal, is under way

Fina

ncia

l sta

tem

ents

FINANCIAL STATEMENTSAudit Committee report 138

Approval of the annual financial statements 139

Group Company Secretary certificate 139

Independent auditors’ report 140

Report of the Directors 141

Accounting policies 151

Income statements 166

Balance sheets 167

Statement of recognised income and expense 168

Cash flow statements 169

Segmental analysis 170

Notes and annexures to the annual financial

statements 172

AUDIT COMMITTEE REPORT


We are pleased to present our report for the financial year ended 31 March 2007 as recommended by the King II Report on CorporateGovernance and Regulation 27 of the Treasury Regulations.

The Audit Committee of the Transnet Board of Directors is composed of five independent non-executive Directors. The committee heldfour scheduled meetings in the 2007 financial year.

The Audit Committee reports that it has adopted appropriate formal terms of reference as its Audit Committee Charter and hasregulated its affairs in compliance with this Charter, and has discharged all its responsibilities as contained therein. This process issupported by the audit subcommittees which are in place for all operating divisions and subsidiaries. These subcommittees meet interms of a formal mandate and deal with all issues arising at the operating division or subsidiary level. These subcommittees thenelevate any unresolved issues of concern to the Transnet main Audit Committee and internal and external auditors, who also elevateissues identified at the operating divisions and subsidiaries to the Transnet main Audit Committee.

In the conduct of its duties, the Audit Committee has, inter alia, performed the following activities:• Received and reviewed reports from both internal audit and the external auditors concerning the effectiveness of the Group’s

internal control systems;• Reviewed the reports of both internal and external auditors detailing their concerns arising out of their audits and requested

appropriate responses from management which will result in their concerns being addressed;• Considered the effectiveness of internal audit, approved the one-year and three-year internal audit plans and monitored the

adherence of internal audit to its annual programme;• Reviewed and recommended for adoption by the Transnet Board such financial information that is publicly disclosed, which for the

year included:– the Annual Report for the year ended 31 March 2007; and– the interim results for the six months ended 30 September 2006.

• Considered the independence and objectivity of the external auditors and ensured that the scope of their additional servicesprovided was not such that they could be seen to have impaired their independence; and

• Made appropriate recommendations to the Board of Directors regarding the corrective actions to be taken as a consequence ofaudit findings.

In the opinion of the Audit Committee, the internal controls of the Group are considered appropriate to:• Meet the business objectives of the Group;• Ensure the Group’s assets are safeguarded; and• Ensure that transactions undertaken are recorded in the Group’s accounting records.

Where weaknesses in specific controls have been identified, management has undertaken to implement the appropriate correctiveaction to mitigate the weaknesses identified.

The Audit Committee has evaluated the Annual Report for the year ended 31 March 2007 and considers that it complies, in all materialrespects, with the requirements of the Companies Act, 61 of 1973, as amended, the Public Finance Management Act, 1 of 1999, thePublic Audit Act, 25 of 2004, and International Financial Reporting Standards. The Audit Committee has therefore recommended theadoption of this Annual Report by the Board of Directors at their meeting on 21 June 2007.

Prof GK EveringhamChairman: Transnet Audit Committee

21 June 2007Johannesburg


APPROVAL OF THE ANNUAL FINANCIAL STATEMENTS

The Directors are required, by the Companies Act, the Public Finance Management Act and the Public Audit Act, to prepare annualfinancial statements which fairly present the state of affairs of the Company and the Group as at the end of the financial year and theprofit or loss of the Company and the Group for the year then ended. In preparing these annual financial statements, the Directors arerequired to:• select suitable accounting policies and apply them consistently;• make judgements and estimates that are reasonable and prudent;• state whether applicable accounting standards have been followed; and• prepare the annual financial statements on the going concern basis unless it is inappropriate to presume that the Company and/or

the Group will continue in business for the foreseeable future.

The Directors of the Company are responsible for the maintenance of adequate accounting records and the preparation and integrityof the annual financial statements and related information. The annual financial statements have been prepared in accordance withInternational Financial Reporting Standards. The external auditors, Deloitte & Touche, are responsible for independently auditing andreporting on the financial statements in conformity with International Standards on Auditing. Their unqualified report on the annualfinancial statements prepared in terms of the Companies Act, Public Finance Management Act and Public Audit Act appears on page 140.

The Directors have every reason to believe that the Company and Group have adequate resources in place to be able to continue inoperation for the foreseeable future. Therefore the Directors are satisfied that Transnet is a going concern and have continued toadopt the going concern basis in preparing the financial statements.

The Audit Committee has reviewed the effectiveness of the Group's and Company’s internal controls and considers the systemsappropriate to the effective operation of its business. The Audit Committee has evaluated the Group's annual financial statements andhas recommended their approval to the Board of Directors. The Audit Committee's approval is set out on page 138 of the Annual Report.

In preparing the Company and Group annual financial statements set out on pages 141 to 244, the Company and the Group havecomplied with International Financial Reporting Standards and the Companies Act in South Africa. The Group has complied with thereporting requirements of the Public Finance Management Act and the Public Audit Act and has used appropriate accounting policiessupported by reasonable and prudent judgements and estimates. The Directors are of the opinion that these annual financialstatements fairly present the financial position of the Company and the Group at 31 March 2007, and the results of their operationsand cash flow information for the year then ended.

M Ramos FTM PhaswanaGroup Chief Executive Chairman

21 June 2007 21 June 2007Johannesburg Johannesburg

I hereby certify that in terms of section 268G(d) of the Companies Act, 61 of 1973, to the best of my knowledge and belief, theCompany has lodged with the Registrar of Companies all such returns for the year ended 31 March 2007 as are required of a publiccompany in terms of this Act, and all such returns are true, correct and up to date.

Z Stephen Group Company Secretary

21 June 2007Johannesburg

GROUP COMPANY SECRETARY CERTIFICATE

INDEPENDENT AUDITORS’ REPORT TO THE MINISTER OF PUBLIC ENTERPRISES


INTRODUCTIONWe have audited the accompanying financial statements of Transnet Ltd and the Group which comprise the Report of Directors, balancesheets as at 31 March 2007, and the income statements, statements of recognised income and expense and cash flow statements forthe year then ended, and a summary of significant accounting policies and other explanatory notes. These financial statements are theresponsibility of Transnet’s accounting authority. Our responsibility is to express an opinion on these financial statements based on ouraudit. The performance is the responsibility of the accounting authority. Our responsibility is to express an opinion on whether theperformance information is furnished in terms of subsection 55(2)(a) of the Public Finance Management Act, 1 of 1999, as amended,is fair in all material respects and on a basis consistent with that of the preceding year.

ACCOUNTING AUTHORITY’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTSThe Company’s accounting authority is responsible for the preparation and fair presentation of these financial statements inaccordance with International Financial Reporting Standards, and in the manner required by the Companies Act, 61 of 1973 of SouthAfrica, the Public Finance Management Act, 1 of 1999, as amended, and the Public Audit Act, 25 of 2004. This responsibility includesdesigning, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements thatare free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and makingaccounting estimates that are reasonable in the circumstances.

AUDITORS’ RESPONSIBILITYOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance withInternational Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the auditto obtain reasonable assurance whether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement ofthe financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimatespresentation of the financial statements. The audit was planned and performed to obtain reasonable assurance that our duties in termsof section 27 and 28 of the Public Audit Act, 25 of 2004, have been complied with.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

AUDIT OPINIONIn our opinion, the annual financial statements fairly present, in all material respects, the financial position of the Company and theGroup at 31 March 2007 and the results of their operations and cash flows for the year then ended in accordance with InternationalFinancial Reporting Standards and in the manner required by the Companies Act, 61 of 1973 of South Africa, the Public FinanceManagement Act, 1 of 1999, as amended, and the Public Audit Act, 25 of 2004.

In our opinion, the performance information presented on pages 143 and 144 of the Report of Directors presents fairly, in all materialrespects, Transnet Ltd and the Group’s performance for the year ended 31 March 2007 against predetermined objectives and is, whereapplicable, consistent with that of the preceding year.

The transactions of Transnet Ltd and the Group that had come to the auditors’ attention during the audit were in all material respects inaccordance with the mandatory functions of Transnet Ltd, as determined by law or otherwise.

Deloitte & ToucheRegistered Auditors

Per T KalanPartner21 June 2007Deloitte Place The Woodlands, 20 Woodlands DriveWoodmead, 2199

A full list of partners and directors is available on request.


REPORT OF THE DIRECTORS

INTRODUCTIONThe Board of Directors has pleasure in presenting its report and the audited financial statements of Transnet Ltd (the Company) and itssubsidiaries (the Group) for the year ended 31 March 2007.

OWNERSHIPThe Company is a State-owned enterprise (SOE), wholly owned by the Government of the Republic of South Africa, reporting to itsshareholder through the Department of Public Enterprises.

REGISTRATION DETAILSThe registration number of the Company is 1990/000900/06. The registered name and address of the Company are as follows:

Transnet Limited47th Floor, Carlton Centre,150 Commissioner Street,Johannesburg,2001

PRINCIPAL ACTIVITIESThe Company operates and controls South Africa’s major transport infrastructure. During the year, focus remained on transforming theCompany into an integrated and focused rail, port and pipeline business.

As part of the implementation of the approved four-point turnaround strategy, the Company continued to exit businesses that are notits focus, including commercial aviation and passenger rail transportation.

Further details of the businesses and investments earmarked for disposal are reflected in annexures C and D to the annual financialstatements.

SHARE CAPITALThere has been no change in the authorised share capital of the Company during the year.

The issued share capital of the Company has been reduced by 2 049 000 000 ordinary shares to 12 660 986 310 in the current year.This reduction resulted from the sale of South African Airways (Pty) Ltd (SAA) to the South African Government and the purchase pricewas settled through a buy-back of the Company’s shares.

Further details regarding the Company’s share capital are contained in note 21 to the annual financial statements.

Special resolutionsThe following special resolutions were registered during the year:

Amendments to the Articles of AssociationSpecial resolution 1– The Company is allowed to buy back its shares in accordance with the provisions of section 85(1) of the Companies Act.

Special resolution 2– A specific approval contemplated in section 85(2) of the Companies Act to acquire two billion and forty nine million ordinary shares

of the Company with a par value of one rand each from the Government of the Republic of South Africa (the Government), to be setoff against the purchase consideration payable by the Government to the Company in terms of the SAA sale of shares agreemententered into between the Company and the Government on 12 June 2006.

Special resolution 3– Cancellation of the shares as issued shares, acquired pursuant to special resolution 2 above, and restoring them to the status

of authorised shares.

REPORT OF THE DIRECTORS continued


SUBSIDIARIES AND ASSOCIATE COMPANIESA share-sale agreement, subject to certain suspensive conditions, was concluded on 12 June 2006 for the disposal of South AfricanAirways (Pty) Ltd (SAA). The effective date on which risks and rewards of ownership passed to the Department of Public Enterpriseswas 31 March 2006. As at 31 March 2007 all the substantive suspensive conditions that the sale was subject to, were either fulfilled orwaived and consequently the Company recorded the sale of SAA in its accounting records.

The sale price of R2 billion was discharged by a share buy-back and as a result Transnet’s net equity decreased by approximatelyR1 billion.

As part of the sale agreement, Transnet provided certain last resort guarantee facilities to SAA that expired on 31 March 2007.However, due to legislative delays in obtaining a suitable Government guarantee, the existing facility of R1,5 billion shall remain in placefor a short period until the replacement guarantee is procured.

The Group also disposed of its investment in V&A Waterfront Holdings (Pty) Ltd. The Company recognised a profit on the sale ofR1 230 million and the Group R711 million.

A detailed list of subsidiary and associate companies is contained in annexure D to the annual financial statements. The detailedeffects of businesses and investments that have been discontinued or classified as held-for-sale in terms of IFRS 5 are containedin annexures C and D of the annual financial statements.

Changes in accounting policiesThe accounting policies used in the preparation of the annual financial statements for the year ending 31 March 2007 are consistentwith IFRS and with those used in the prior year, except as disclosed in the accounting policies and note 37 to the annual financialstatements.

SUMMARY OF GROUP FINANCIAL PERFORMANCE

2007 2006 %Continuing operations R million R million change

Revenue 28 214 26 034 8EBITDA 11 488 10 301 12

Equity attributable to shareholder 37 311 29 413 27Cash generated from operations before working capital changes 13 488 11 244 20

EBITDA margin (%) 40,7 39,6 3Gearing (%) 39 46 (15)

DIVIDENDSThere were no dividends declared for the current year.

A dividend policy that is reviewed annually has been approved by the Board and the shareholder. The policy provides that dividends willbe declared to the shareholder in circumstances where cash cannot be effectively utilised in the business, provided that appropriategearing ratios are maintained.

Cash in the business will primarily address priorities in the strategic plan such as funding of the R78,9 billion investment plan over thenext five years.

BORROWINGSThe Company’s borrowing powers are limited to those approved by the Company in General Meeting and subject to the Public FinanceManagement Act, 1 of 1999 (PFMA).

As at 31 March 2007, the Group’s borrowings amounted to R25 150 million, an increase of R3 293 million compared to the prior year.This increase can be attributed to borrowings that were raised to fund the capital expenditure programme.


CAPITAL EXPENDITURE AND COMMITMENTSThe capital expenditure for the Group over the next five years amounts to R78,9 billion. The Group has spent approximatelyof R11,7 billion in the current year and is expecting to spend R17,9 billion in the year ahead.

Further details regarding capital expenditure and commitments are contained in note 31 of the annual financial statements.

GOING CONCERNThe Directors are of the opinion that the business will be a going concern for the foreseeable future. In reaching this opinion, theDirectors considered the following factors:• Transnet has adequate credit facilities from its lenders to fund its operations and meet its financial obligations in the normal

course of business for the foreseeable future;• The operational and financial risks of the business have been significantly reduced;• The previously reported deficit in the Second Defined Benefit Fund has now been eroded and the fund is in surplus;• About 80% of the Transnet Group’s debt is guaranteed by the Government of the Republic of South Africa;• The current strategy of Transnet focuses on rail, ports and pipelines and as part of this strategy, non-core businesses and assets

(some of which are underperforming) are being disposed of;• The risks emanating from the recently promulgated National Ports Act, 2005, are manageable and will not impact the Group

negatively;• The net worth of the Transnet Group has improved by 27% since March 2006;• The gearing ratio shows continued improvement; and• Cash flow forecasts indicate that the Group will have sufficient cash resources to meet its obligations as they fall due.

COMPLIANCE WITH LEGISLATIONThe Directors believe that the Company has, during the year, complied, in all material respects, with all legislation and regulationsapplicable to it, including without limitation, the Companies Act, 61 of 1973, as amended, the Public Finance Management Act,1 of 1999, the Treasury Regulations and the Income Tax Act, 58 of 1962.

PUBLIC FINANCE MANAGEMENT ACT (PFMA)Shareholder Compact – performance criteriaIn pursuance of its objective to promote good corporate governance in State-owned enterprises, the Government, as sole shareholder,and Transnet signed a Shareholder Performance Agreement (Shareholder Compact).

Performance information and other criteria, as required by section 55(2)(a) of the PFMA, have been outlined below in terms of theShareholder Compact.

Performance Key performance 2007 2007area indicator (KPI)/measure Benchmark Target Actual Performance

Capital/financial efficiency** EBITDA margin (%)# > 35*** 34,8 40,7 Achieved

Cash interest cover (times)# > 5*** 5,4* 5,4 Achieved

Gearing ratio (%) – 2007 40 – 50*** 47,9 39,0 Achieved– 2006 59,0 47,0 Achieved

CFROI (%) – 2007 > 6*** 5,8 6,8 Achieved– 2006 4,1 5,8 Achieved

Infrastructure investment % of actual capital expenditure compared to budgeted expenditure – 2007 > 90% of R11 847 R11 674 99%

target million million Achieved– 2006 100%

Achieved

% of total maintenance R3 890 R5 495 141%spent compared to budget# > 90% of target million million Achieved

* Including sale of shares** Discontinued businesses – SAA, freightdynamics, Viamax and Autopax*** These benchmarks are the target of performance in the medium term (next three years)# Key performance indicator not applicable in prior year.



Total revenue increase 2006 vs 2007 (core businesses)

Total core Rail National Ports Portbusinesses Freight Rail Engineering Authority Terminals Pipelines

Tariff (%) Target 3,3 3,1 4,3 2,9 3,9 2,0Actual 5,1 5,5 4,0 1,3 5,0 7,0Result Achieved Achieved Not achieved Not achieved Achieved Achieved

Volume/ Target 11,5 10,9 28,6 3,7 8,8 6,8activity (%) Actual 17,9 (1,1) 86,0 15,5 9,0 8,0

Result Achieved Not achieved Achieved Achieved Achieved Achieved

Total (%) – 2007 Target 15,2 14,3 34,1 6,7 13,0 8,9Actual 19,0 3,7 90,3 12,3 14,3 14,9Result Achieved Not achieved Achieved Achieved Achieved Achieved

Total (%) – 2006 Target 8,2 6,6 # 10,9 11,3 7,8Actual 6,5 4,5 # 11,0 9,3 3,8Result Not achieved Not achieved # Achieved Not achieved Not achieved

Total revenue = Internal and external revenues# Key performance indicator not applicable in prior year

COMPLIANCE – PUBLIC FINANCE MANAGEMENT ACTContinuing operationsTransnet Ltd has implemented governance structures and processes in compliance with the provisions of the PFMA. PFMA complianceis one of the key business issues that the Group manages and monitors.

Current year accomplishments include the approval of a PFMA policy, the development of PFMA guides and training material and theroll-out of PFMA training to all staff.

Sections 51 and 55 of the PFMA impose certain obligations on the Company and these relate to the prevention, identification andreporting of all fruitless, wasteful and irregular expenditure and collection of all revenue. In order to comply with these obligations, theTransnet Board of Directors has prepared a materiality framework which was approved by the Minister of Public Enterprises, subjectto certain conditions.

The Transnet Board of Directors is pleased to report that no contraventions of the PFMA, subject to the materiality framework, haveto be reported by the Board.

Discontinued operationsListed below are certain PFMA contraventions which have been identified by the SAA Board of Directors and which will be reportedto the Minister of Public Enterprises:

Procurement systemSection 51(1)(a)(iii) of the PFMA requires the procurement system to be fair, equitable, transparent, competitive and cost-effective.Substantial progress has been made in improving the procurement processes within SAA. However, there are legacy contracts andarrangements approved long before the implementation of the enhanced procurement system, against which payments have beenmade during the year. Accordingly SAA is unable to claim full compliance with section 51 of the PFMA.

Irregular, fruitless and wasteful expenditureSections 51 and 55 of the PFMA contain certain obligations for the company to comply with.

In the light of the internal control weaknesses, SAA is not confident that it is fully compliant with all the requirements of the PFMAregarding the prevention and disclosure of irregular expenditure in terms of section 51(b)(ii) of the Act.

Shareholder CompactFor the year a Shareholder Compact, as required by Treasury Regulation 29, was not in place due to the impending unbundling of SAAfrom Transnet and the finalisation of SAA’s restructuring and corporate plan. In the absence of the Shareholder Compact, performanceinformation has not been included in the Annual Report as envisaged by section 55(2) of the PFMA.

LegislationSection 51(1)(h) of the PFMA requires that SAA complies with the PFMA and any other legislation applicable to that company.

A monitoring plan, to monitor compliance with laws and regulations, has been approved and is currently being implemented.


Internal controlAs a result of the onerous obligations of the PFMA and the failure to fully comply with all statutory prescripts of the PFMA, SAA isalso in breach of sections 51 and 57 relating to internal control.

TARIFF REGULATORS IMPACTING TRANSNETNational Ports Act, 12 of 2005 (the Act)The Act came into effect on 26 November 2006 by Presidential proclamation in Government Gazette Number 2941.

In summary, the Act establishes the National Ports Authority Ltd (the Authority) as the landlord of South Africa’s ports, and establishesan independent Ports Regulator with oversight powers. With effect from the aforementioned commencement of the Act, the NationalPorts Authority of South Africa (a division of Transnet Ltd) is deemed to be ‘the Authority’ provided for in the Act and must perform thefunctions of ‘the Authority’ contemplated in the Act.

The Act sets out three phases of corporate transition for the National Ports Authority of South Africa: firstly, in its current form, as adivision of Transnet Ltd; secondly as a wholly owned subsidiary company of Transnet Ltd and finally as a public company whose assetsare separate from those of Transnet Ltd.

On 13 November 2006 the Department of Transport published Draft Regulations to the Act (Draft Regulations) for public comment.

Transnet has raised concerns with certain aspects of the Act and the draft regulations in their current form. A Transnet Board ad hoccommittee, comprising Mr FTM Phaswana (Chairman), Dr SE Jonah, KBE, Dr I Abedian, Mr PG Joubert and the Group Chief Executive,Ms M Ramos, has been formed to assist the Company to effectively deal with the challenges brought by the Act. The committeecontinues to engage with the shareholder on these matters.

PETRONET TARIFF REGULATOR, THE NATIONAL ENERGY REGULATOR OF SOUTH AFRICA (NERSA)On 30 March 2007 the Company was informed by NERSA that an application by Petronet for a tariff increase for next year had beenturned down. The Company is proactively engaging with the appropriate authorities to ensure that an appropriate tariff methodologyis put in place. Before approving the capital expenditure for the new multi-product pipeline, the Board must be satisfied that a returngreater than Transnet’s weighted cost of capital will likely be achieved.

JUDICIAL PROCEEDINGSThe annual financial statements include a best estimate of expected settlement for judicial proceedings entered into with Transnetas either a defendant or plaintiff, where the outcome can be assessed with reasonable certainty, taking into account legal opinionsobtained for the Company.

The contingent liabilities of the Group have been disclosed in note 32 to the annual financial statements.

POST-BALANCE SHEET EVENTSThe following significant issues have occurred between 31 March 2007 and 21 June 2007:

Sale of “C” class preference share in Newshelf 664 (Pty) LtdOn 21 June 2007 Transnet Ltd accepted an offer of R5,8 billion from Newshelf 664 (Pty) Ltd, subject to certain conditions, for theredemption of the “C” class preference share held by Transnet Ltd in Newshelf 664 (Pty) Ltd.

Claim by Umthunzi Telecoms Consortium (Pty) LtdOn 11 April 2007 the Umthunzi Telecoms Consortium (Pty) Ltd instituted legal action in the Transvaal Provincial Division of the HighCourt against The Government of the Republic of South Africa as the first defendant and Transnet Ltd as second defendant claimingthe delivery of certain MTN Group shares. The claim amounts to approximately R2,2 billion. The Directors have sought and obtainedadvice from attorneys and counsel and, based on that advice, believe there is no legal basis for the claim and it is therefore unlikelyto succeed.

Sale of Viamax (Pty) LtdTransnet Ltd has concluded an agreement in principle to sell Viamax Holdings (Pty) Ltd, its fleet management and leasing business, toBidvest Group Ltd, for approximately R1 billion.

Sale of Transnet Housing Loan BookThe Transnet Housing Loan Book has been sold to First National Bank with effect from 1 April 2007 for its fair value of approximatelyR1,4 billion, subject to certain suspensive conditions.



Sale of Transnet Pension Fund AdministratorsA sale agreement was concluded between Transnet Ltd, Fifth Quadrant Actuaries and Consultants (Pty) Ltd and MetropolitanRetirement Fund Administrators (Pty) Ltd for the sale of the Transnet Pension Fund Administrator’s business for an amount ofR23 million with effect from 1 April 2007.

Sale of VAE Perway (Pty) LtdA sale agreement was concluded between Transnet Ltd and VAE GmbH for the sale of VAE Perway (Pty) Ltd for R30 million.The effective date of the transaction is 16 April 2007.

freightdynamicsTransnet has entered into negotiations for the sale of freightdynamics. The sale of this business will be subject to the provisionsof section 197 of the Labour Relations Act and is expected to be completed by 30 June 2007.

Transtel DEVITransnet Ltd is involved in negotiations for the disposal of its Transtel DEVI assets.

AUDITORSAt the Annual General Meeting, held on 11 August 2006, Deloitte & Touche were reappointed as external auditors of the Company.APF Chartered Accountants Inc., who had been joint auditors from March 1996 to 11 August 2006, were not reappointed in line withthe Board’s policy on rotation of auditors.

Deloitte & Touche was in turn required by the Company to subcontract a portion of the audit work to a black-owned firm of auditors.A selection process overseen by the Group Audit Committee resulted in the appointment of Sizwe Ntsaluba VSP as the subcontractingblack-owned firm.

The business address of Deloitte & Touche is Deloitte Place, The Woodlands, 20 Woodlands Drive, Woodmead, 2199.

The Group internal audit is outsourced to Ernst & Young. Business address: Wanderers Office Park, 52 Corlett Drive, Illovo.

COMPANY SECRETARYTransnet Ltd’s Group Company Secretary is Ms Zola Stephen, Business address: 47th Floor, Carlton Centre, 150 Commissioner Street,Johannesburg, 2001.

DIRECTORSMs NR Ntshingila and Dr Norman Haste, OBE were appointed as non-executive Directors with effect from 23 May 2006.

The composition of the Board of Directors, with summary curriculum vitae of each Director, appears on pages 8 and 9.

The remuneration of the Directors is set out on pages 147 and 148.

REMUNERATION REPORTThe Remuneration Committee’s mandate includes reviewing the design and management of salary structures, policies and incentiveschemes and ensuring that they motivate sustained high performance and are linked to corporate performance.

During the year, the work of the committee included considering and approving, amongst others, the following matters:• Long-term incentive scheme for 2007 to 2011;• Short-term performance incentive scheme;• Wage mandate for the bargaining unit;• Management salary increases;• Report on the Group Executive Committee members’ remuneration; and• Report on the Group Chief Executive’s remuneration.

The Remuneration Committee also considers external market information for comparisons between reward structures andremuneration levels applicable to Directors and executives of the Group and those applicable to counterparts in organisationsof similar size and complexity in comparable business sectors both in South Africa and, where appropriate, in other relevant countries.

During the year, the committee considered reports of two independent South African consultants specialising in remuneration.

The Company fully discloses all components of the Group Executive Committee members’ remuneration information.

The Group Chief Executive is invited to all committee meetings, but recuses herself when her own remuneration is discussed.


The members of the Remuneration Committee are all independent non-executive Directors: Dr SE Jonah, KBE (Chairman),Ms NBP Gcaba (Deputy Chairman), Dr I Abedian, Ms NR Ntshingila and Mr PG Joubert.

Group Executive Committee membersWith the exception of the Group Chief Executive, all senior executives of the Company are not employed on a fixed-term contract basis.The Company therefore carries no liability on termination of employment of an executive.

Guaranteed remunerationThe Company carried out an exercise, with the assistance of consultants specialising in remuneration matters, to review salariesof the Group Executive Committee members’ remuneration packages, taking into account the scope and nature of each member’s role,the individual’s performance and experience, comparing with the median and upper quartile pay levels of South African companies.Adjustments, approved by the Remuneration Committee, were effected to the individuals’ remuneration packages with effect from1 April 2006.

Executive guaranteed remuneration

Post-retirement

benefit fund Other Other TotalSalary contributions contributions payments 2007 2006

Name R thousand R thousand R thousand R thousand R thousand R thousand

M Ramos+ 4 616 436 – 4 5 056 4 009CF Wells+ 3 172 326 – 3 3 501 2 600SI Gama 3 142 238 45 11 3 436 2 346VD Kahla 2 534 195 30 24 2 783 1 952P Maharaj 2 629 202 36 6 2 873 1 880CA Möller 1 892 209 45 6 2 152 1 544LRR Molotsane* – – – – – 935T Morwe 2 504 201 53 4 2 762 1 800B Nomvete* – – – – – 4 501**KC Phihlela 2 408 180 – 25 2 613 1 784BS Tshabalala* – – – – – 1 262R Vallihu 2 386 218 29 7 2 640 –LL van Niekerk 3 388 311 – 5 3 704 2 824

Total 28 671 2 516 238 95 31 520 27 437

+ Group Executives who are members of the Board of Directors.* Resigned.** Termination benefits.

PERFORMANCE BONUSThe performance bonuses (excluded from guaranteed remuneration) reflected below are according to the principles of the approvedbonus scheme for 2007 and will be paid during the 2008 financial year.

2007 2006Name R thousand R thousand

M Ramos 2 938 2 886CF Wells 2 100 1 732SI Gama 1 877 1 109VD Kahla 1 570 1 282P Maharaj 1 610 1 244CA Möller 1 040 1 004T Morwe 1 434 1 188KC Phihlela 1 313 1 125BS Tshabalala – 831R Vallihu 1 479 –LL van Niekerk 2 266 1 905

Total 17 627 14 306



Non-executive DirectorsNon-executive Directors are appointed by the shareholder for a three-year term. The Articles of Association of the Company, however,require that the Directors be submitted for reelection for each of the three years at the Company’s Annual General Meeting. Amongstthe issues considered by the shareholder prior to reelection is the individual Director’s performance.

The shareholder approves, in advance, the fees payable to non-executive Directors.

Fees paid to non-executive Directors vary based on their appointments to the various committees of the Transnet Board.

As part of non-executive Directors’ emoluments, the Directors of the Company are each entitled to annual international concessiontickets on South African Airways flights. The concession ticket benefit is valid for the Directors in office and must be used during theyear or the benefit is forfeited.

The figures on concession tickets benefit utilised in the year as well as UIF payments made by the Company are contained on the ‘Otherpayments’ column in the table below.

Other TotalFees payments 2007 2006

Name R thousand R thousand R thousand R thousand

Board membersFTM Phaswana (Chairman) 1 048 2 1 050 1 077I Abedian 458 52 510 451GK Everingham 544 49 593 543NBP Gcaba 435 125 560 451ND Haste OBE* 300 – 300 –SE Jonah KBE 450 1 451 450PG Joubert 487 1 488 537NNA Matyumza 375 109 484 390S Nicolaou 375 84 459 452NR Ntshingila* 375 1 376 –BT Ngcuka 395 47 442 439KC Ramon 375 91 466 465M Moses* – – – 46

Total 5 617 562 6 179 5 301

* In proportion to time spent.


Subsidiary Directors’ remunerationExecutive Directors

Post-retirement

benefit fund Other TotalSalary contributions payments 2007 2006

Name R thousand R thousand R thousand R thousand R thousand

South African Airways (Pty) Ltd 6 090 1 474 2 777 10 341 12 900

G Griffiths * 2 175 – 110 2 285 –O Mabandla – – – – 2 050K Ngqula 3 570 1 430 – 5 000 6 850T Ramano ** 345 44 2 667 3 056 4 000

SAA City Centre (Pty)Ltd 953 77 52 1 082 1 229

TJ Nzima 953 77 52 1 082 1 229

SAA Technical (Pty) Ltd 1 067 – 34 1 101 3 118

J Blake 1 067 – 34 1 101 1 535R Ramkissoon – – – – 1 583

Airchefs (Pty) Ltd 766 88 240 1 094 1 938

B Fischer ** – – – – 251V Kona ** – – – – 220J September 766 88 240 1 094 1 467

SA Express Airways (Pty) Ltd 1 659 – 1 641 3 300 1 675

S Mzimela 991 – 1 370 2 361 1 181FJ Oberholzer ** – – – – 494S Zulu * 668 – 271 939 –

Viamax (Pty) Ltd 778 126 608 1 512 959

N Hariparsad 778 126 608 1 512 959

Autopax Passenger Services (Pty) Ltd 1 596 138 352 2 086 1 003

MC Bester 1 596 138 352 2 086 1 003

Protekon (Pty) Ltd# – – – – 1 184

C Xaba – – – – 1 184

B2B Africa# – – – – 834

NN Shikwane – – – – 834

Total 12 909 1 903 5 704 20 516 24 840

* Appointed during the current financial year.** Resigned during the current financial year.# Decorporatised or in process of liquidation during the current financial year.



Non-executive Directors

Other TotalFee payments 2007 2006

Name R thousand R thousand R thousand R thousand

South African Airways (Pty) Ltd Group 2 750 – 2 750 3 854

TJ Dikgale * 20 – 20 –R Doganis – – – 505F du Plessis * 75 – 75 –G Gerwel 500 – 500 500PG Joubert 300 – 300 250KP Kalyan * 75 – 75 –B Modise * 75 – 75 –M Moerane ** 230 – 230 360LM Mojela 400 – 400 350MV Moosa ** 150 – 150 300N Moyo * 75 – 75 –A Ngwezi ** 310 – 310 310P Nkuna ** 160 – 160 310C Okeahalam ** 210 – 210 969M Ramos ** @ – – – –J Schrempp * 75 – 75 –IAM Semenya * 20 – 20 –M Whitehouse * 75 – 75 –

SA Express Airways (Pty) Ltd 320 – 320 300

C Christodoulou 20 – 20 –P Maharaj * @ – – – –B Mohale 70 – 70 75S Nicolaou 60 – 60 65L Nyhonyha 70 – 70 75K Phihlela ** @ – – – –A Richman 55 – 55 55M Vuso 45 – 45 30

Viamax (Pty) Ltd 160 – 160 234

J Giltrow – – – 26F Leppan 76 – 76 82M Moses – – – 68SYU Nhlapo 84 – 84 58

Protekon (Pty) Ltd # – – – 10

PG Joubert – – – 10

Autopax Passenger Services (Pty) Ltd 21 18 39 96

V Jack 21 18 39 22V Kahla @ – – – –P Maharaj @ – – – –KC Ramon – – – 74

Total 3 251 18 3 269 4 494

* Appointed during the current financial year** Resigned during the current financial year# Decorporatised or in process of liquidation during the current financial year@ Shareholder representative of Transnet Ltd


ACCOUNTING POLICIES

Transnet Ltd (the Company) is a company domiciled in South Africa.

The consolidated financial statements for the year ended 31 March 2007 comprise the Company and its subsidiaries (together referredto as the Group) and the Group’s interest in associates and joint ventures.

The financial statements were authorised for issue by the Directors on 21 June 2007.

STATEMENT OF COMPLIANCEThe consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs)issued by the International Accounting Standards Board (IASB) and their Interpretations issued by the International Financial ReportingInterpretations Committee (IFRIC).

CRITICAL JUDGEMENTS AND ESTIMATES MADE IN APPLYING THE ACCOUNTING POLICIESThe preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptionsthat affect the application of policies and reported amounts of equity, assets and liabilities, revenue and expenses.

The estimates and associated assumptions are based on historical experience and various other factors that are considered to bereasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in theperiod in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if therevision affects both current and future periods.

Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimateswith a significant risk of material adjustment in the next year are discussed below.

Critical judgements made by the Transnet Board of Directors in applying accounting policies and key sources of estimation oruncertainty are detailed below:

Property, plant and equipment• Revaluation

– Port operating assets, pipeline networks and port infrastructure assets are carried at revalued amounts. Revaluations areperformed every five years and appropriate indices are applied in the intervening periods to ensure that the assets are carriedat fair value at the balance sheet date.

– The carrying amounts of the assets are disclosed in note 9.

Assumptions regarding impairment calculations on assets governed by IAS 36 Impairment of Assets• Various assumptions are made regarding the discount rate applied and the estimation of future cash flows. These are as follows:

– Weighting of debt to equity in the weighted average cost of capital (WACC) calculation;– A beta and risk premium considered appropriate by management to determine the WACC;– Future cash flows were based on historic trends and operational plans determined by management; and– Where the materialisation of cash flows was considered risky, the WACC was adjusted to reflect this.

• The total impairment recorded is disclosed in note 4.4.

Useful lives and residual values• The useful lives of property, plant and equipment are reviewed at each balance sheet date. These useful lives are estimated

by management based on historic analysis and other available information.• The residual values of property, plant and equipment are reviewed at each balance sheet date. The residual values are based on the

assessment of useful lives and other available information.• The carrying amounts of the assets are disclosed in note 9.

Fair value assumptions – investment properties• Experts are used to arrive at the fair value of investment properties. Assumptions used in these valuations are in line with the

Property Valuers Profession Act, 47 of 2000.• The carrying amounts of the assets are disclosed in note 10.

Special purpose entitiesManagement has applied significant judgement in determining whether the substance of the relationship between the Group anda special purpose entity indicates that the special purpose entity is controlled by the Group.

ACCOUNTING POLICIES continued


Valuation of the Subco derivativeThe carrying value of the Subco derivative has been arrived at after utilising a model developed by an external valuer. Managementhave further applied judgement to the valuation obtained, taking into account factors pertaining to the realisation of the asset. The fairvalue of the derivative asset is disclosed in note 14 and the fair value adjustment on the derivative asset is disclosed in note 5.

Qualifying hedge relationshipsAs disclosed in note 14, the Group have fair value hedges in place. In designating financial instruments as qualifying hedgerelationships, the Group has determined that it expects the hedge to be highly effective over the life of the hedging instrument.

Post-retirement benefit obligationsVarious assumptions have been applied by management and the actuaries in the calculation of the post-retirement benefit obligations.The assumptions and their sensitivities are disclosed in note 33 to the annual financial statements. The carrying amounts of theliabilities are disclosed in note 24.

ProvisionsVarious assumptions are applied in arriving at the carrying value of provisions that are recognised in terms of the requirements ofIAS 37 Provisions, Contingent Liabilities and Contingent Assets. The carrying amounts of the liabilities are disclosed in note 26.

Management further relies on input from the Group’s lawyers in assessing the probability of matters of a contingent nature. Contingentliabilities are disclosed in note 32.

SIGNIFICANT ACCOUNTING POLICIESBasis of preparationThe consolidated financial statements of the Group (financial statements) are presented in South African rands, rounded to the nearestmillion.

The financial statements are prepared on the historical cost basis, except for the following assets and liabilities that are stated at theirfair value: unlisted investments, derivative financial instruments, financial instruments held for trading, financial instruments classifiedas available-for-sale, investment properties and non-current assets, which are classified as held-for-sale. Certain classes of property,plant and equipment are carried at revalued amounts.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements exceptfor the adoption of IFRIC 4 and Circular 9/2006, which have been adopted retrospectively from 1 April 2005.

The accounting policies have been applied consistently by Group entities.

CHANGE IN ACCOUNTING POLICYThe Group has adopted IFRIC 4 and SAICA Circular 9/2006, retrospectively from 1 April 2005. Impacts thereof are disclosed in note37, “Changes in accounting policy and other restatements”.

IFRIC 4 Determining whether an arrangement contains a leaseIFRIC 4 provides guidance on determining whether arrangements (that do not take the legal form of a lease) are, or contain, leases.Leases identified through the adoption of this interpretation have been recognised as leases in terms of IAS 17 Leases. The recognitionof such leases requires a retrospective adjustment to financial information, resulting in a favourable restatement to openingdistributable reserves of R16 million net of taxation at 31 March 2006.

SAICA Circular 9/2006 Transactions giving rise to adjustments to revenue/purchasesCash discounts and rebates are required to be accounted for as an adjustment to revenue or the carrying value of inventory as the casemay be. Where extended payment terms are granted by the Group the effect of the time value of money is taken into account. The prioryear results of discontinued operations have been restated to include a reclassification of R295 million from revenue to net operatingexpenses excluding impairment of assets and fair value adjustments.

BASIS OF CONSOLIDATIONSubsidiariesSubsidiaries (including special purpose entities, such as trusts) are entities controlled by the Group. Control exists when the Group hasthe power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.Typically, this will be where the Group has more than 50% of the voting power. In assessing control, potential voting rights that arepresently exercisable or convertible are taken into account. The consolidated financial statements include the results of the Companyand its subsidiaries, from the effective dates of acquisition to the effective dates of disposal.

The purchase method of accounting in terms of IFRS 3 Business Combinations is applied to account for the acquisition of subsidiaries.The cost of an acquisition is measured as the fair value of the assets given up, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired, liabilities and


contingent liabilities assumed in a business combination are measured, initially, at their fair values at the acquisition date, irrespectiveof the extent of any minority interest. Non-current assets acquired in a business combination that are classified as held-for-sale aremeasured in accordance with IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations and are measured at the lowerof carrying value and fair value less costs to sell. The excess of the cost of acquisition over the fair value of the Group’s share of theidentifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets acquired,the difference is recognised directly in the income statement. The interest of the minority shareholders is stated at the minority’sproportion of the fair value of the assets, liabilities and contingent liabilities recognised.

On subsequent disposal of a subsidiary, the profit or loss on disposal is the difference between the selling price and the lower of thefair value and carrying value of the net assets and liabilities disposed of. On disposal, the amount attributed to goodwill is included inthe determination of the profit or loss on disposal.

Special purpose entities are consolidated when the substance of the relationship between the Group and the special purpose entityindicates that it is controlled by the Group.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised lossesare also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies of the Group.

Associates (equity accounted investees)Associates are entities over which the Group is in a position to exercise significant influence, but not control or joint control of thefinancial and operating policies. Investments in associates are equity accounted in the consolidated financial statements for the periodin which the Group exercises significant influence, except when the investment is classified as held-for-sale in accordance with IFRS 5Non-current Assets Held-for-Sale and Discontinued Operations. In terms of IFRS 5, the investment in the associate will be recognisedand measured at the lower of carrying value and fair value, less costs to sell. Significant influence is presumed in instances where theGroup has an equity stake greater than 20% but less than 50% in an entity.

Equity accounted income represents the Group’s proportionate share of the post-acquisition profits of these entities and the share oftaxation thereon, net of the Group’s proportionate share of intergroup profits. Losses incurred by associates (including impairment losseswhere such indications exist) are brought to account in the consolidated financial statements until the investment in such associates iswritten down to a nominal value. Thereafter, losses are accounted for only insofar as the Group is committed to providing financial supportto such associates. The carrying amount of such investments is reduced to recognise any decline in the value of the investment.

Long-term loans to associates, which in fact are part of the long-term investment, are treated as a part of the investment in the associates.

The excess of cost of the acquisition over the fair value of the associate’s net assets is recorded as goodwill. Goodwill is included in thecarrying value of the investment and is assessed for impairment as part of the investment. If the cost of acquisition is less than the fairvalue of the net assets acquired, the difference is recognised directly in the income statement.

The Group’s interest in an associate is carried in the balance sheet at an amount that reflects its share of the cost, post-acquisitionreserves, plus goodwill, less an impairment loss, if applicable.

Where the Group transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’sinterest in the relevant associate, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred.

Joint ventures (equity accounted investees)A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to jointcontrol, that is when strategic financial and operating policy decisions relating to the activities of the joint venture require theunanimous consent of the parties sharing control.

Joint venture agreements that involve the establishment of a separate entity in which each venturer has an interest are referred to asjointly controlled entities. The Group reports its interest in jointly controlled entities using the equity method except when theinvestment is classified as held-for-sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held-for-Saleand Discontinued Operations.

Equity accounted income represents the Group’s proportionate share of the post-acquisition profits of these entities and the shareof taxation thereon, net of the Group’s proportionate share of intergroup profits. Losses incurred by joint ventures (includingimpairment losses where such indications exist) are brought to account in the consolidated financial statements until the investmentin such joint ventures is written down to a nominal value. Thereafter, losses are accounted for only insofar as the Group is committedto providing financial support to such joint ventures. The carrying amount of such investments is reduced to recognise any decline inthe value of the investment.



The excess of cost of the acquisition over the fair value of the joint venture’s net assets is recorded as goodwill. Goodwill is included inthe carrying value of the investment and is assessed for impairment as part of the investment. If the cost of acquisition is less than thefair value of the net assets acquired, the difference is recognised directly in the income statement.

Where the Group transacts with a joint venture of the Group, unrealised profits and losses are eliminated to the extent of the Group’sinterest in the relevant joint venture, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred.

FOREIGN CURRENCYFunctional and presentation currenciesItems included in the financial statements of each of the Group’s entities are measured using the currency of the primary economicenvironment in which the entity operates (the functional currency). The consolidated financial statements are prepared in South Africanrands, which is the Company’s functional currency and the Group’s presentation currency.

Foreign currency transactionsTransactions in currencies other than the entity’s functional currency are defined as foreign currency transactions. Transactions inforeign currencies are translated at exchange rates ruling on transaction dates. Monetary assets and liabilities denominated in foreigncurrencies are translated into the functional currency at the rate of exchange ruling at the balance sheet date.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated at the exchangerates ruling at the original transaction date. Non-monetary assets and liabilities that are carried at fair value denominated in theforeign currency are translated into the functional currency at the exchange rate ruling when the fair value was determined.

All gains or losses arising on translation are recognised in the income statement and are classified as finance costs.

Financial statements of foreign operationsThe financial statements of foreign operations are translated into South African rands as follows:• Assets and liabilities, at rates of foreign exchange ruling at the balance sheet date.• Revenue and expenses at rates approximating the foreign exchange rates ruling at the dates of the transactions or appropriate

average rates.• Goodwill and fair value adjustments arising on acquisition, at rates of foreign exchange ruling at balance sheet date.• Equity at historical rates.

Any foreign exchange differences arising on translation are recognised as a separate component of equity. Exchange differencesarising from the translation of the net investment in foreign operations, and of related hedges are taken to the translation reserve.

On disposal, such translation differences are recognised in the income statement as part of the gain or loss on disposal.

REVENUERevenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and theamounts of revenue can be reliably measured. Revenue is net of value added taxation.

Transportation and other related servicesRevenue from transportation and other related services is recognised by reference to the stage of completion of transactions at thebalance sheet date. The stage of completion is assessed by reference to surveys of work performed. No revenue is recognised if thereare significant uncertainties regarding recovery of the consideration due and associated costs.

Rental incomeRevenue arising from the rental of property is recognised on an a straight-line basis over the term of the lease in accordance with thesubstance of the relevant agreements. Lease incentives granted are recognised as an integral part of the total rental income.

Construction contractsAs soon as the outcome of a construction contract can be estimated reliably, contract revenue and expenses are recognised in profit orloss in proportion to the stage of completion of the contract. Contract revenue includes the initial amount agreed in the contract plusany variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue and canbe measured reliably.

The stage of completion is assessed by reference to surveys of work performed. When the outcome of a construction contract can notbe estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable inthe period in which they are incurred. An expected loss on a contract is recognised immediately in the income statement.

Dividend incomeDividend income is recognised in the income statement on the date the entity’s right to receive payments is established which in thecase of quoted securities is usually the ex-dividend date.


Finance incomeFinance income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, whichis the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the asset’s netcarrying amount.

Government grantsGovernment grants are recognised at their fair value where there is reasonable assurance that the grant will be received and allsuspensive conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periodsnecessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset,the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of therelevant asset on a straight-line basis.

Transactions giving rise to adjustments to revenue/purchasesThe Group accounts for cash discounts and rebates received (given) as follows:• In the case of the Group as a purchaser, cash discounts and rebates received are estimated upfront and deducted from the cost of

inventories purchased, and • In the case of the Group as a seller, cash discounts and rebates given are estimated upfront and deducted from the amount of

revenue recognised.

Where extended payment terms are granted by the Group, whether explicitly or implicitly, the effect of the time value of money istaken into account irrespective of other factors such as the cash selling prices of the goods.

IMPAIRMENT OF ASSETSThe carrying amounts of the Group’s tangible and intangible assets with a definite life, other than financial assets, investment property,non-current assets classified as held-for-sale, inventories and deferred taxation assets are reviewed at each balance sheet date todetermine if there is any indication of impairment. If such an indication exists, the recoverable amount of the asset is estimated todetermine the extent of the impairment loss (if any). Where an asset does not generate cash flows that are independent from otherassets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. For goodwill and intangibleassets that have an indefinite useful life, the recoverable amount is estimated at each balance sheet date, and whenever there is anindication that the asset may be impaired.

An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount,unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwillallocated to cash-generating units (group of units) and then to reduce the carrying amount of the other assets in the unit (group ofunits) on a pro rata basis.

Calculation of recoverable amountThe recoverable amount of an asset is the higher of the asset’s fair value less costs to sell and its value-in-use. Fair value less costs tosell is determined by ascertaining the current market value of an asset and deducting any costs relating to the realisation of the asset.In assessing the value-in-use, the expected future cash flows from the asset are discounted to their net present values using a pre-taxation discount rate that reflects current market assessments of the time value of money and the risks specific to the asset and theoperating division to which that asset belongs. For an asset that does not generate largely independent cash flows, the recoverableamount is determined for the cash-generating unit to which the asset belongs.

Reversals of impairmentAn impairment loss in respect of goodwill is not reversed.

In respect of other assets, a previously recognised impairment loss is reversed if the recoverable amount increases as a result of achange in the estimates previously used to determine the recoverable amount, to an amount not higher than the carrying amount thatwould have resulted, net of depreciation or amortisation, had no impairment loss been recognised. A reversal of an impairment loss isrecognised as income immediately, if the impairment was recognised previously as an expense, unless the relevant asset is carried ata revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

BORROWING COSTSBorrowing costs are recognised in the income statement in the period in which they are incurred.

NET FINANCING COSTSNet financing costs comprise interest payable on borrowings calculated using the effective interest rate method, dividends onredeemable preference shares, foreign exchange gains and losses, and gains and losses on derivative instruments that are recognisedin the income statement.



TAXATIONIncome taxation on the profit or loss for the period comprises current and deferred taxation. Income taxation is recognised in theincome statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current taxationThe charge for current taxation is the amount of income taxes payable in respect of the taxable profit for the current period and anyadjustment to taxation payable in respect of previous years. It is calculated using taxation rates that have been enacted orsubstantively enacted by the balance sheet date.

Deferred taxationDeferred taxation is provided using the balance sheet method on all temporary differences arising between the carrying amounts ofassets and liabilities for financial reporting purposes and their taxation bases. The following temporary differences are notprovided for: • the initial recognition of goodwill;• the initial recognition of assets and liabilities (other than in a business combination), which affect neither accounting nor taxable

profit or loss; and • differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount ofassets and liabilities and is calculated using the taxation rates that have been enacted or substantively enacted at the balance sheetdate. Deferred taxation is charged or credited in the income statement except where it relates to items charged or credited directlyto equity, in which case the deferred taxation is also dealt with in equity.

A deferred taxation asset is recognised to the extent that it is probable that future taxable profits will be available to be utilisedagainst the associated unused taxation losses and deductible temporary differences. Deferred taxation assets are reduced to theextent that it is no longer probable that the related taxation benefit will be realised.

Deferred taxation liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and jointventures, except where the Group is able to control the timing of the reversal of the temporary differences and it is probable that itwill not reverse in the foreseeable future.

Deferred taxation assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and theGroup has the legal right to and intends to settle its current taxation assets and liabilities on a net basis.

Secondary taxation on companies (STC)STC is provided in respect of the expected dividend payments net of dividend assets and is recognised as a taxation charge in the yearin which the dividend is declared. STC credits on dividends received are recorded as deferred taxation assets in the period that theyarise limited to the reserves available for distribution.

PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment is stated at cost, or revalued amounts, less accumulated depreciation where appropriate and anyaccumulated impairment losses.

Recognition and measurementPort operating assets, pipeline networks and port infrastructure assets are carried at revalued amounts. Revaluations are carried outevery five years and appropriate indices are applied in the intervening periods to ensure that the assets are carried at fair value at thebalance sheet date. Revaluation surpluses that arise are taken directly to the revaluation surplus in equity, except to the extent thatthey reverse a revaluation decrease for the same asset previously recognised as an expense, in which case the surplus is credited tothe income statement to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluationof an asset is charged as an expense to the extent that it exceeds the balance, if any, held in the asset’s revaluation surplus relatingto a previous revaluation of that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplusin the revaluation reserve is transferred to retained earnings.

Cost includes expenditure that is directly attributable to the acquisition of the asset.

Assets under construction, including capital work in progress, are stated at cost, less any impairment losses where the recoverableamount of the asset is estimated to be lower than its carrying amount. The cost of self-constructed assets includes the cost ofmaterials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the siteon which they are located, and an appropriate proportion of production overheads.

Where components of an item of property, plant and equipment have different useful lives, they are accounted for as separate itemsof property, plant and equipment and depreciated separately over their respectful useful lives.


Spare parts, standby and servicing equipment held by the Group are classified as property, plant and equipment if they are expectedto be used in more than one period. If not, they are classified as inventory. Spare parts and servicing equipment that can be used onlyin connection with a specific item of property, plant or equipment are also accounted for as property, plant and equipment.

Subsequent costsThe Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an itemwhen that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the costof the item can be measured reliably. All other costs are recognised in the income statement as expenses as incurred.

Exchangeable units, such as aircraft engines, are classified as property, plant and equipment. Costs of major repairs and overhauls ofthose units are capitalised as separate components.

DepreciationDepreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each component of an itemof property, plant and equipment. Land and assets in the course of construction are not depreciated. All other property, plant andequipment, including capitalised leased assets, are depreciated on a straight-line basis over their estimated useful lives or the term ofthe lease, if shorter. Major repairs and overhauls are depreciated over the remaining useful life of the related asset or to the date of thenext major repair or overhaul, whichever is shorter. Depreciation commences when the asset is available for its intended use bymanagement. The estimated useful lives for the current and comparative periods are as follows:

Years

Buildings and structures 10 – 50– Buildings and structures components 5 – 25Permanent way and works 3 – 95Aircraft including components 8 – 15Pipelines including network components 6 – 60Port infrastructure 12 – 50– Floating craft including components 10 – 20– Port operating equipment including components 3 – 40Rolling stock 30 – 60– Rolling stock components 25 – 30Containers 10 – 20Motor vehicles 3 – 7Machinery, equipment and furniture 3 – 50

The useful lives, depreciation method and the residual values of assets are reviewed and adjusted annually, if appropriate. Changesresulting from this review are accounted for prospectively as changes in estimates. An asset’s carrying amount is written downimmediately to its recoverable amount if the asset’s carrying value exceeds its estimated recoverable amount (refer note 4.4).

INVESTMENT PROPERTIESInvestment properties are properties held to either earn rentals and/or for capital appreciation and are initially measured at cost,including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value. Gains and losses arisingfrom changes in the fair value of investment properties are recognised in the income statement. Rental income from investmentproperties is accounted for as described in “REVENUE” on page 154.

INTANGIBLE ASSETS AND GOODWILLSoftware and licencesSoftware and licences are recognised and measured at cost less accumulated amortisation and any impairment losses.

Costs associated with researching or maintaining computer software programmes are recognised as an expense as incurred. Costs that aredirectly associated with the development of identifiable software products controlled by the Group, and that will probably generateeconomic benefits beyond one year, as well as for which the costs can be measured reliably, are recognised as intangible assets. Directcosts include the software development employee costs and an appropriate portion of relevant overheads. Costs relating to the acquisitionof licences are capitalised and amortised on a straight-line basis when available for use in the manner intended by management.

Research and developmentResearch costs, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognised in theincome statement as incurred. Development costs, arising from the application of the research findings to a plan or design for the productionof new or substantially improved products and processes, are also recognised in the income statement as incurred, except where:• an asset is created that can be identified;• the development cost of the asset can be reliably measured;



• the development is evaluated as being technically or commercially feasible;• the Group has sufficient resources to complete development; and• the Group can demonstrate how the development will generate future economic benefits in which event the development costs are

capitalised. The expenditure capitalised includes the cost of materials, direct labour and an appropriate portion of overheads.

Capitalised development costs are stated at cost less accumulated amortisation and any accumulated impairment losses. Developmentcosts that have finite useful lives are amortised on a straight-line basis over their useful lives. Development costs with indefinite usefullives are not amortised, but tested at each balance sheet date for impairment.

Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Subsequent expenditureSubsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied inthe specific asset to which it relates. All other expenditure is expensed as incurred.

Amortisation and impairmentIntangible assets with an indefinite useful life are tested for impairment at each balance sheet date. Amortisation is charged to theincome statement on a straight-line basis over the estimated useful lives of intangible assets, unless such lives are indefinite. Otherintangible assets are amortised from the date they are available for use. The estimated useful lives for the current and comparativeperiods are as follows:

Software 5 yearsLicences term of the licence

Positive goodwillIn respect of business combinations that have occurred since 1 April 2004, goodwill represents the excess of the cost of theacquisition of interests in subsidiaries and associates over the net fair value of the identifiable assets, liabilities and contingentliabilities at the date of acquisition.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is tested annually for impairment as well as when there is anindication of impairment. Goodwill is allocated to cash-generating units that are expected to benefit from the synergies of thecombination for the purposes of impairment testing (refer “IMPAIRMENT OF ASSETS” on page 155). Impairment losses recognised arenot subsequently reversed.

Goodwill arising on acquisition of an associate is included within the carrying amount of the investment in the associate. Goodwillarising on the acquisition of subsidiaries and jointly controlled entities is presented separately on the balance sheet.

Gains and losses on the disposal of an entity include the carrying amount of goodwill attributable to the entity sold.

Negative goodwillNegative goodwill represents the excess of the fair value of the identifiable assets and liabilities acquired over the cost of acquisitionof the Group’s interests in subsidiaries, associates or jointly controlled entities.

Negative goodwill arising on an acquisition is recognised directly in the income statement, provided that the negative goodwill issupported by the reassessment of the identification and measurement of the acquiree’s identifiable assets, liabilities and contingentliabilities and the cost of the business combination.

FINANCIAL INSTRUMENTSFinancial assets and financial liabilities are recognised on the balance sheet when the Group has become party to the contractualprovisions of the instruments.

MeasurementFinancial instruments are initially recognised at fair value and transaction costs for a financial asset or financial liability that is notcarried at fair value through profit or loss. Subsequent to initial recognition these instruments are measured as set out below.

RecognitionThe Group applies trade date accounting for “regular way” purchases and sales and settlement date accounting is applied to theTransnet bonds. Financial instruments recognised on the balance sheet include:


Investments, including subsidiaries, jointly controlled entities and associatesAfter initial recognition, investments in the Group’s market-making portfolios in both bonds and money market instruments, which areclassified as held for trading, as well as those classified as available-for-sale, are measured at fair value. Fair value is the market value(listed investments) of either the market price of a substantially similar investment or the present value of expected future cash flowsof the net asset base (unlisted investments). Gains or losses on investments held for trading are recognised in the income statement.Gains or losses on available-for-sale investments are recognised as a separate component of the Group’s equity until the investment issold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or losspreviously reported in equity is recognised in the income statement. Impairment losses on available-for-sale equity instruments thatare recognised in the income statement are not subsequently reversed.

In the Company’s financial statements, investments in unlisted subsidiaries, jointly controlled entities and associates are carried atcost less accumulated impairment and losses where appropriate.

Other long-term investments that the Group is able to and intends to hold to maturity are subsequently measured at amortised costusing the effective interest method less any impairment losses recorded to reflect irrecoverable amounts. Amortised cost is calculatedby taking into account any discount or premium on acquisition over the period to maturity. For investments carried at amortised cost,gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through theamortisation process.

Derivative instruments and hedgingThe Group uses derivative financial instruments, which include futures, forward exchange and currency option contracts, cross currencyand interest rate swaps and interest rate options to hedge its exposures arising from operational, financing and investment activities.

In accordance with its Treasury policy, the Group does not speculate in the trading of derivative instruments.

Subsequent to initial recognition, derivative financial instruments are measured at fair value. The fair value changes are recogniseddirectly in the income statement (even if the derivative is designated as a hedging instrument refer below).

The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balancesheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of theforward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.

The Group designates certain derivatives as hedges of the fair value of recognised assets or liabilities or firm commitments (fair valuehedges). At the inception of the hedge relationship, the relationship between the hedging instrument and the hedged item isdocumented, along with its risk management objectives and its strategy for undertaking various hedge transactions. At the inceptionof the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in the hedging relationship ishighly effective in offsetting changes in fair values of cash flows of the hedged item.

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statementimmediately, together with any changes in the fair value of the hedged item that is attributable to the hedged risk.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold,terminated, or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arisingfrom the hedged risk is amortised to the income statement from that date.

Derivatives embedded in other financial instruments or non-derivative host contracts are treated as separate derivatives when theirrisks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value withunrealised gains or losses reported in the income statement. The Group assesses whether an embedded derivative is required to beseparated from the host contract and accounted for as a derivative when the Group first becomes a party to the contract.

Subsequent reassessment is only performed by the Group if there is a change in the terms of the contract that significantly modifiesthe cash flows that otherwise would be required under the contract.

Loans receivableLoans receivable are measured at amortised cost, using the effective interest rate method, less any impairment recognised. Amortisedcost is calculated by taking into account any transaction costs, and any discount or premium on settlement.

Trade and other receivablesTrade and other receivables, which generally have 30 to 90-day terms, are recognised and carried at amortised cost using the effectiveinterest method. Allowances for irrecoverable amounts are recognised in the income statement when there is objective evidence thatthe asset is impaired. The allowance is measured as the difference between the carrying amount and the present value of estimatedfuture cash flows discounted at the effective interest rate computed at initial recognition.



Cash and cash equivalentsCash and cash equivalents comprise cash at bank and on hand, and instruments which are readily convertible, within 90 days, to knownamounts of cash and are subject to an insignificant risk of change in value. Cash and cash equivalents are measured at amortised cost.

For the purposes of the consolidated cash flow statements, cash and cash equivalents include bank overdrafts.

Financial liabilitiesAfter initial recognition, financial liabilities other than financial liabilities at fair value through profit or loss are subsequently measuredat amortised cost using the effective interest method. Amortised cost is calculated by taking into account any transaction costs, andany discount or premium on settlement.

Financial liabilities at fair value through profit or loss are measured at fair value and the resultant gains and losses are included inprofit or loss. Buybacks on bonds are recorded on a FIFO basis.

Interest-bearing borrowingsInterest-bearing borrowings are recognised initially at fair value less related transaction costs. Subsequent to initial recognition,interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognisedin the income statement over the period of the borrowings on an effective interest basis.

Trade payables and accrualsLiabilities for trade and other amounts payable which are settled within normal terms are stated at amortised cost.

Impairment of financial assetsAn assessment is made at each balance sheet date to determine whether there is objective evidence that a financial asset or groupof financial assets may be impaired. If such evidence exists, the estimated recoverable amount of the asset is determined and animpairment loss is recognised for the difference between the recoverable amount and the carrying amount as follows:• For financial assets held at amortised cost – the carrying amount of the asset is reduced to its discounted estimated recoverable

amount (present value of estimated future cash flows, discounted at the original effective interest rate), and the resulting loss isrecognised in the income statement for the period. Receivables with a short duration are not discounted.

• For available-for-sale financial assets – where a loss has been recognised directly in equity as a result of a previous downward fairvalue adjustment, the cumulative net loss recognised in equity is transferred to the income statement for the period.

An impairment loss in respect of a held-to-maturity security or receivable carried at amortised cost is reversed if the subsequentincrease in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. Animpairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would havebeen determined if no impairment loss has been recognised.

An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through profit orloss. An impairment loss in respect of a debt instrument classified as available-for-sale is reversed through profit and loss if its fairvalue increases and the increase can be objectively related to an event occurring after the impairment loss was originally recognised inprofit or loss.

OffsetWhere a legally enforceable right of offset exists for recognised financial assets and financial liabilities, and there is an intention tosettle the liability and realise the asset simultaneously, or settle on a net basis, all related financial effects are offset.

Financial liabilities and equityFinancial instruments issued by the Group are classified according to their substance and definitions of financial liabilities and equity.

Equity instrumentsAn equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.Equity instruments are recorded at the value of the proceeds received, net of direct issue costs.

DerecognitionFinancial assets (or a portion thereof) are derecognised when the Group’s rights to the cash flow expire or when the Group transferssubstantially all the risks and rewards related to the financial asset or when the entity loses control of the financial asset. Onderecognition, the difference between the carrying amount of the financial asset and proceeds receivable and any prior adjustmentto reflect fair value that had been reported in equity are included in the consolidated income statement.

Financial liabilities (or a portion thereof) are derecognised when the obligations specified in the contract are discharged, cancelled orexpired. On derecognition, the difference between the carrying value of the financial liability, including related unamortised costs, andsettlement amounts paid is included in the consolidated income statement.


Fair value methods and assumptionsThe fair value of financial instruments traded in an active financial market is measured at the applicable quoted prices.

The fair value of financial instruments not traded in an active financial market, is determined using a variety of methods andassumptions that are based on market conditions and risks existing at balance sheet date, including independent appraisals anddiscounted cash flow methods.

The carrying amounts of financial assets and liabilities with a maturity of less than six months are assumed to approximate their fair value.

INVENTORIESInventories are stated at the lower of cost and estimated net realisable value. Net realisable value represents the estimated sellingprice in the ordinary course of business, less all estimated costs of completion and selling.

Cost is determined as follows:• Raw materials and consumable stores are stated at weighted average cost.• Manufactured goods and work in progress are stated at weighted average cost valued at raw material cost, plus direct labour cost,

and an appropriate portion of related manufacturing overhead cost, based on normal capacity.

Write-downs to net realisable value and inventory losses are expensed in the period in which the write-downs or losses occur.

CONSTRUCTION WORK IN PROGRESSConstruction work in progress represents the gross unbilled amount expected to be collected from customers for contract workperformed to date. It is measured at cost plus profit recognised to date less progress billings and recognised losses. Cost includes allexpenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contractactivities based on normal operating capacity.

Construction work in progress is presented as part of trade and other receivables in the balance sheet. If payments received fromcustomers exceed the income recognised, then the difference is presented as deferred income in the balance sheet.

NON-CURRENT ASSETS CLASSIFIED AS HELD-FOR-SALE AND DISCONTINUED OPERATIONSNon-current assets and disposal groups are classified as held-for-sale if their carrying amount will be recovered principally througha sale transaction rather than continuing use. This condition is regarded as met only when the sale is highly probable and the assetor disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which shouldbe expected to qualify for recognition as a completed sale within one year from the date of classification.

Immediately before classification as held-for-sale, the measurement of the assets (and all assets and liabilities in a disposal group) isbrought up-to-date in accordance with applicable IFRSs. Then, on initial classification as held-for-sale, non-current assets and disposalgroups are recognised at the lower of carrying amount and the fair value less costs to sell.

Impairment losses on initial classification as held-for-sale are included in the income statement, even when the assets have beenrecorded at revalued amounts. The same applies to gains and losses on subsequent measurement. A gain or subsequent increase in fairvalue less costs to sell may not exceed the cumulative impairment losses previously recognised in terms of IFRS 5 or IAS 36.

Non-current assets classified as held-for-sale are not depreciated or amortised whilst classified as such.

A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical areaof operations or is a subsidiary acquired exclusively with a view to resell.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held-for-sale, if earlier. A disposal group that is to be abandoned may also qualify as a discontinued operation.

SHARE CAPITALIncremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of taxation, from theproceeds. Incremental costs directly attributable to the issue of new shares for the acquisition of a business are included in the costof a business acquisition.

When share capital is repurchased, the amount of the consideration paid, including directly attributable costs, is deducted from equity.Repurchased shares are classified as treasury shares and presented as a deduction from the total equity until they are cancelled, re-issued or disposed of.

Dividends are recognised as a liability in the period in which they are declared.



EMPLOYEE BENEFITSThe Group operates several defined benefit funds and a defined contribution fund. The assets of each scheme are held separately fromthose of the Group and are administered by the schemes’ trustees. The defined benefit funds are actuarially valued for accountingpurposes by professional independent consulting actuaries on an annual basis.

Defined contribution fundThe Group’s contributions to the defined contribution fund are charged to the income statement during the period to which they relate.

Defined benefit fundsThe benefit costs and obligations under the defined benefit funds are determined separately for each fund using the projected unitcredit method. The benefit costs are recognised in the income statement. All actuarial gains and losses are recognised in the period inwhich they occur outside of the income statement, in the statement of recognised income and expenditure.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by the employees is recognisedas an expense in the income statement on a straight-line basis over the average period until the benefit becomes vested. To the extentthat the benefits vest immediately, the expense is recognised immediately in the income statement.

The post-retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation asadjusted for unrecognised past service cost and reduced by the fair value of plan assets. Any asset resulting from this calculation is limitedto the unrecognised past service cost plus the present value of available refunds and reductions in the future contributions to the plan.

Post-retirement medical benefitsPost-retirement medical benefits are provided by the Group to qualifying employees and pensioners. The medical benefit costs aredetermined through annual actuarial valuations by independent consulting actuaries using the projected unit credit method. Actuarialgains or losses are recognised in line with the policy described above.

Short- and long-term benefitsThe cost of all short-term employee benefits, such as salaries, bonuses, housing allowances, medical and other contributions isrecognised during the period in which the employee renders the related service.

The Group’s net obligation in respect of long-term service benefits, other than pension plans and post-retirement medical benefits isthe amount of future benefit that employees have earned in return for their service in the current and prior periods.

Termination benefitsTermination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or wheneveran employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it hasdemonstrated its commitment to either terminate the employment of current employees according to a detailed formal plan withoutpossibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.

LEASESGroup as a lesseeLeases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership, are classified asfinance leases. Finance lease liabilities and leased assets are capitalised at the inception of the lease at the lower of the fair value ofthe leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability andfinance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net offinance charges, are included in other long-term payables.

The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodicrate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leasesare depreciated over the shorter of the asset’s useful life and the lease term.

Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Paymentsmade under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-linebasis over the period of the lease. Benefits received as an incentive to enter into an operating lease are recorded on a straight-linebasis over the lease term.

Group as a lessorWhen assets are leased out under a finance lease, the present value of the lease payments, as well as the initial direct costs, arerecognised as a lease receivable. The difference between the gross receivable and the present value of the receivable is recognised asunearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflectsa constant periodic rate of return.


Assets leased to third parties under operating leases are included in property, plant and equipment in the balance sheet. They aredepreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (netof any incentives given to the lessee) is recognised on a straight-line basis over the lease term.

Sale and leasebackWhere a sale and leaseback agreement is classified as a finance lease, any excess of the sale proceeds over the carrying values isdeferred and recognised in the income statement over the period of the lease.

Where a sale and leaseback agreement is classified as an operating lease and the transaction took place at fair value, any excess ordeficit of the sale proceeds over the carrying values of the assets sold is recognised in the income statement in the year in which itarises. If the deficit is compensated for by future lease payments at below market price, the deficit is deferred and amortised inproportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above fair value, theexcess over fair value shall be deferred and amortised over the period for which the asset is expected to be used.

Determining whether an arrangement contains a leaseThe Group ensures that the following two requirements are met, in order for an arrangement transacted by the Group to be classified asa lease in terms of IAS 17:• Fulfilment of the arrangement is dependant on the use of an asset or assets, and this fact is not necessarily explicitly stated by the

contract but rather implied; and• The arrangement conveys a right to use the asset, if one of the following conditions is met:

– The purchaser has the ability or right to operate the asset or direct others to operate the asset, (while obtaining or controllingmore than an insignificant amount of the output of the asset); or

– The purchaser has the ability or right to control physical access to the asset, (while obtaining more than an insignificant amountof the output of the asset); or

– There is only a remote possibility that parties other than the purchaser will take more than an insignificant amount of theoutput of the asset, and the price that the purchaser will pay is neither fixed per unit of output nor equal to the current marketprice at the time of delivery.

The Group’s assessment of whether an arrangement contains a lease is made at the inception of the arrangement, with reassessmentoccurring in the event of limited changes in circumstances as specified by IFRIC 4.

PROVISIONSProvisions are recognised in the balance sheet when the Group has a present legal or constructive obligation, as a result of a past event,and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliableestimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expectedfuture cash flows at a pre-taxation rate that reflects current market assessments of the time value of money and, where appropriate,the risks specific to the liability.

WarrantiesA provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warrantydata and a weighting of all possible outcomes against their associated probabilities.

RestructuringA provision for restructuring costs is recognised when the Group has a detailed formal plan for the restructuring and the Group hasraised a valid expectation with those affected that it will carry out the restructuring by starting to implement that plan or announcingits main features to those affected by it. Restructuring provisions only include those direct expenditures which are necessarily entailedby the restructuring and not associated with the ongoing activities of the entity. Future operating costs are not provided for.

Environmental rehabilitationIn accordance with the Group’s environmental policy and applicable legal requirements, a provision for environmental rehabilitation inrespect of clean-up costs is recognised when it meets the recognition requirements for provisions.

Onerous contractsA provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower thanthe unavoidable cost of meeting its obligations under the contract.

Other provisionsOther provisions, for example, third-party claims, freight insurance, customer claims and leave pay provisions are recognised when theymeet the recognition requirements as per IAS 37 Provisions, Contingent Liabilities and Contingent Assets.



Financial guarantees A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss itincurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of the debtinstrument. The Group recognises financial guarantee contracts initially at fair value. Subsequently these are recognised at the higher of:• the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and • the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue.

SEGMENT REPORTINGA segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), orproviding products or services within a particular economic environment (geographical segment), which is subject to risks and rewardsthat are different from those of other segments.

The Group conducts business in all aspects of transport and maritime operations, as well as related services. On the primary segmentbasis, the main business groupings of the Group are rail, maritime, pipeline, aviation, road and property.

On the secondary segment basis, which is the reporting format by geographic analysis, the Directors consider that there is onlyone material geographic segment, being the Republic of South Africa. Therefore it is not considered necessary to disclosesecondary segments.

ACCOUNTING POLICIES RELATING TO DISCONTINUED OPERATIONSCritical judgements and estimates made in applying the accounting policiesCritical judgements made by the Transnet Board of Directors in applying accounting policies and key sources of estimation uncertaintyare detailed below:

Accrual for Frequent Flyer ProgrammeThe amount of the accrual to be raised as a liability for the Voyager miles that are expected to be redeemed is determined using variousassumptions concerning the future behaviour of Voyager members. Those include the following:• The Voyager members will continue to prefer redemption of mileage in exchange for the free air ticket instead of other non-air

ticket rewards such as free car hire and free wine tours.• The Voyager members who redeem miles in exchange for the other rewards will continue to be immaterial within the next

financial year.• The Voyager rewards for free tickets are non-displacing to fare-paying passengers, and therefore the incremental costs method

is appropriate in estimating the Voyager liability.• The Voyager members accumulate miles from various sources including frequent flying using South African Airways (Pty) Ltd and

from the use of Voyager participating partners. No distinction is made at redemption point between miles earned from frequentflying and those earned from other sources.

The carrying amount of the accrual for the Voyager miles is disclosed in note 29.

Air traffic liability and revenue recognitionThe air traffic liability balance represents the proceeds from tickets and airway bills sold but not yet utilised. The balance includes thevalue of coupons sold by South African Airways (Pty) Ltd (SAA), which will be flown and claimed in future periods by code-share andinterline partners. The liability is of a short-term nature and is reflected as a current liability.

Due to system limitations affecting SAA’s ability to accurately compute the forward sales liability on a ticket for ticket basis,management had in the past applied a conservative approach in accounting for tickets sold but not yet flown. Industry norms indicatea non-utilisation rate of between 0% and 3%. Management’s estimates made around the expected percentage of tickets sold that willnot be flown was 2% for passenger tickets and 4% for industry.

Management has revised its assumptions and judgement regarding the period over which the unlisted air tickets and airway bills arereleased to income from a three-year rolling period to eighteen months. In making its judgement, management has consideredthe following:• The successful implementation of a new sales-based revenue accounting system that makes it possible to accurately determine

what part of this liability could be taken to revenue each financial year.• The terms and conditions of the air tickets as stipulated in the International Air Transport Association (IATA) air tickets rules. In

terms of the rules, an air ticket is valid for a period of 12 months from the date of purchase. If it is not utilised within this period itexpires.

• Interline settlement and rejections can, however, take longer than 12 months to be processed.


Significant accounting policiesBasis of preparationSubsequent to the adoption of IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations on 1 April 2005, non-currentassets classified as held-for-sale and disposal groups are stated at the lower of their carrying amount and fair value less costs to sell.

Foreign currencyForeign currency transactionsIn the case of aviation operations, the ruling exchange rate for translation of sales denominated in foreign currencies is theInternational Air Transport Association (IATA) five-day average rate applicable to the transaction month.

Financial instrumentsPre-delivery paymentsPre-delivery payments paid to the manufacturers of aircraft in terms of the contractual arrangements governing the purchaseof aircraft are initially recognised as part of capital work in progress at the cost of the consideration delivered.

In the event that a decision is taken that it is likely that the underlying aircraft will not be purchased at the expected delivery date, butwill be leased under an operating lease, then the related pre-delivery payments will be measured at the present value of theconsideration expected to be received from the ultimate lessor. This consideration will, if it is denominated in foreign currency, betranslated into the measurement currency by applying the ruling exchange rate at the reporting date.

In calculating the value of the future consideration receivable, any benefit or loss that will result as a consequence of the Group havingsecured the aircraft at the original contractual price as against the fair value of the aircraft at the date of delivery to the lessor, whichis taken into consideration in the future operating lease payments, forms part of the consideration receivable. Any loss arising on re-measurement is classified as impairment.

Once the operating lease agreement related to the aircraft has been formally concluded, the receivable amount so arising is transferredfrom capital work in progress to refundable deposits.

Where an aircraft is delivered under short-term bridging finance, pending the finalisation of an operating lease, the related pre-deliverypayments and the final instalment paid to the manufacturer are again measured at the present value of the expected considerationfrom the lessor in the same manner as outlined above. Under these circumstances the full consideration receivable is classified underrefundable deposits.

Trade payables and accrualsIncluded in other payables is an accrual relating to the Frequent Flyer Programme. A subsidiary of the Group manages a travel incentiveprogramme (Voyager) whereby frequent travellers accumulate mileage credits that entitle them to free travel. The airline accrues theestimated incremental cost of providing free travel awards. The accrued incremental cost is included in current liabilities.

Employee benefitsShare-based payment transactionsSouth African Airways (Pty) Ltd (SAA), operates via the South African Airways Share Incentive Scheme, three incentive schemescreated for the benefit of the employees of SAA namely:• The FDC Share Scheme (for the flight deck crew members);• The Share Incentive Scheme (for certain management individuals in SAA only); and• The Employee Share Ownership Programme (allowed SAA employees who were employed by SAA on 1 April 1999 and who were still

in the employment of SAA on 1 March 2001 to acquire shares in SAA).

Under the schemes, the employees are entitled to acquire the subsidiary’s shares at nominal or discounted prices and, subsequently,have the option to sell those shares back to the trust, either at a predetermined price or at a price based on the fair value of the shareat the time of repurchase. Since the subsidiary is not listed and the employees can only realise their benefit by selling the shares to thetrust, the transaction is considered to be a cash-settled share-based payment.

The fair value of the amount payable to the employee is recognised as an employee expense with a corresponding increase in liabilities.The fair value is initially measured at grant date and spread over the service period during which the employees become unconditionallyentitled to payment. The fair value of the grant is measured based on a formula/model, taking into account the terms and conditionsupon which the instruments were granted. The liability is measured at each balance sheet date until it is settled. Any changes in the fairvalue of the liability are recognised as an employee cost.

INCOME STATEMENTSfor the year ended 31 March 2007


Continuing operations25 174 26 890 Revenue 2 28 214 26 034

Net operating expenses excluding depreciation (15 869) (16 196) and amortisation 3 (16 726) (15 733)

Profit from operations before depreciation, 9 305 10 694 amortisation and items listed below 11 488 10 301

(2 084) (2 958) Depreciation and amortisation 4.1 (3 018) (2 163)

7 221 7 736 Profit from operations before the items listed below 4.2 8 470 8 138322 – Profit on sale of interest in businesses 4.3 – 329

(197) (80) Impairment of assets 4.4 (232) (124)340 47 Dividends received 36 85278 663 Fair value adjustments 5 2 385 815

7 964 8 366 Profit from operations before net finance costs 10 659 9 243(2 485) (2 412) Finance costs 6 (2 624) (2 668)

302 225 Finance income 7 187 262

5 781 6 179 Profit before taxation 8 222 6 837(1 964) (1 882) Taxation 8 (1 902) (2 042)

3 817 4 297 Profit after taxation 6 320 4 795Income from associates 13 2 33

3 817 4 297 Profit for the year from continuing operations 6 322 4 828

Discontinued operationsProfit from discontinued operations, including profit on

212 997 disposal of discontinued operations and impairments 1 1 082 102

4 029 5 294 Profit for the year 7 404 4 930

Attributable to equity holder 7 387 4 898Attributable to minority interests 23 17 32

3 835 3 846 Headline earnings 36 5 700 4 383

* Refer note 37 for details of the restatements to prior year results.

COMPANY GROUP

2006 2007 2007 2006Restated* Restated*R million R million Notes R million R million


ASSETSNon-current assets

44 617 53 314 Property, plant and equipment 9 53 826 45 1812 337 2 820 Investment properties 10 2 859 2 369

168 204 Intangible assets and goodwill 11 207 172279 374 Investments in subsidiaries 12

81 28 Investments in associates and joint ventures 13 47 98216 321 Derivative financial assets 14 321 217

2 022 123 Long-term loans and advances 15 123 2 01929 328 Other investments and long-term financial assets 16 460 88

49 749 57 512 57 843 50 144

Current assets1 348 1 750 Inventories 17 1 798 1 3963 895 3 716 Trade and other receivables 18 3 992 4 149

88 192 Derivative financial assets 14 5 658 3 874642 703 Other short-term investments 16 704 643

1 114 3 142 Cash and cash equivalents 19 3 347 1 4003 336 2 821 Assets classified as held-for-sale 20 3 912 16 740

10 423 12 324 19 411 28 202

60 172 69 836 Total assets 77 254 78 346

EQUITY AND LIABILITIESCapital and reserves

14 710 12 661 Issued capital 21 12 661 14 71012 548 20 515 Reserves 22 24 650 14 703

27 258 33 176 Attributable to the equity holder 37 311 29 413Minority interests 23 122 113

27 258 33 176 37 433 29 526

Non-current liabilities4 348 2 422 Post-retirement benefit obligations 24 2 422 4 348

15 940 17 241 Long-term borrowings 25 17 535 16 534370 240 Derivative financial liabilities 14 240 408830 925 Long-term provisions 26 928 847

50 1 670 Deferred taxation liabilities 27 1 707 52

21 538 22 498 22 832 22 189

Current liabilities4 977 5 709 Trade payables and accruals 29 5 875 5 2073 212 5 201 Short-term borrowings 30 7 615 5 3231 259 482 Current taxation liability 502 1 283

140 165 Derivative financial liabilities 14 165 1531 664 2 367 Short-term provisions 26 2 376 1 699

32 25 Bank overdrafts 19 26 34Liabilities directly associated with assets

92 213 classified as held-for-sale 20 430 12 932

11 376 14 162 16 989 26 631

60 172 69 836 Total equity and liabilities 77 254 78 346

* Refer note 37 for details of the restatements to prior year results.

COMPANY GROUP

2006 2007 2007 2006Restated* Restated*R million R million Notes R million R million

BALANCE SHEETSas at 31 March 2007

STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the year ended 31 March 2007


164 1 461 Net gains on revaluation reserves 1 384 198

233 1 621 Gains on revaluations 1 574 267

Net realisation of the surplus on the MTN shares(245) – transferred to profit and loss 22 – (245)

Net realisation of the equity accounted non-distributable – – reserve relating to V&A Waterfront Holdings (Pty) Ltd 22 (119) –

376 963 Net gain on revaluation of port facilities 22 963 376102 658 Net gain on revaluation of pipeline networks 22 658 102

– – Gain on revaluation of other investments 22 72 34

(69) (160) Taxation effect of revalued items 22 (190) (69)

(1) – Net movement on foreign currency translation reserve 22 (36) 36(30) (842) Net decrease in other reserves 22 (857) (73)

1 777 1 212 Net actuarial gains on post-retirement benefit obligations 1 212 1 774

Actuarial gains related to post-retirement 2 502 1 707 benefit obligations 22 1 707 2 499

22 (157) – Actuarial (loss)/gain on the Transnet Pension Fund 33.1.2 (167) 22– Actuarial gain on the Transnet Second

2 644 1 646 Defined Pension Fund 33.1.3 1 646 2 644– Actuarial gain/(loss) on the Transnet Top

(17) 4 Management Pensions 33.1.4 4 (17)– Actuarial loss on the Transnet Workmen’s

(26) – Compensation Act Pensioners 33.1.4 – (26)– Actuarial gain/(loss) on the Transnet Black

(5) 3 Widows’ Pension Benefit 33.1.5 3 (5)– Actuarial gain/(loss) on the Transnet SATS

(82) 134 Pensioners medical benefits 33.2.1 134 (82)– Actuarial gain/(loss) on the Transnet Employees

(34) 77 medical benefits 33.2.2 87 (37)

(725) (495) Taxation effect of net actuarial gains (495) (725)

1 910 1 831 Net income recognised directly in equity 1 703 1 93530 842 Transferred to accumulated profit 857 75

4 029 5 294 Profit for the year 7 404 4 930

5 969 7 967 Total recognised income for the year 9 964 6 940

5 969 7 967 Attributable to equity holder 9 947 6 908– – Attributable to minority interests 23 17 32

5 969 7 967 9 964 6 940

COMPANY GROUP

2006 2007 2007 2006Restated RestatedR million R million Notes R million R million


4 997 7 841 Cash flows from operating activities 8 851 5 865

9 742 11 651 Cash generated from operations 35.1 13 488 11 244(184) 412 Changes in working capital 35.2 133 (418)

Cash generated from operations after working 9 558 12 063 capital changes 13 621 10 826

(2 246) (2 077) Finance costs 35.3 (2 791) (2 900)352 225 Finance income 304 418

(2 041) (1 901) Taxation paid 35.4 (1 961) (2 106)(362) (421) Settlement of post-retirement benefit obligations (453) (362)(264) (48) Derivatives raised and settled 139 (4)

Dividends paid to minorities 35.5 (8) (7)

(3 634) (8 405) Cash flows from investing activities (10 755) (2 479)(2 212) (5 228) Investment to maintain operations (7 257) (970)

(4 375) (7 907) Replacements to property, plant and equipment (8 176) (4 856)(65) (6) Additions to intangible assets (108) (75)

– (1) Intercompany transfers of intangible assets – –90 220 Proceeds on the disposal of property, plant and equipment 315 1 682

– 2 Proceeds on the disposal of intangible assets 3 –(Cash)/overdraft disposed on the disposal of

106 – subsidiaries/divisions 35.6 (1 922) 106– 1 854 Proceeds on the disposal of associates 1 854 –

449 – Proceeds on the sale of other investments – 567340 47 Dividend income 36 85

(190) 59 Acquisition of subsidiary/division 35.7 – –Settlement of net liability on disposal of the

(78) – business of Spoornet Zambia – (78)– (4) Acquisition of associates (4) –

(8) 117 Net loans to subsidiaries and associates 4 6796 525 Net receipts of long-term loans and advances 522 798723 (134) Decrease/(increase) in other investments 219 795

(1 422) (3 177) Investment to expand operations (3 498) (1 509)

(1 422) (3 177) Expansions – property, plant and equipment (3 498) (1 745)– – Refunded pre-delivery payments on aircraft – 236

(2 060) 2 599 Cash flows from financing activities 3 669 (4 001)

(2 060) 2 599 Borrowings raised/(repaid) 3 669 (4 001)

(697) 2 035 Net increase/(decrease) in cash and cash equivalents 1 765 (615)1 779 1 082 Cash and cash equivalents at the beginning of the year 1 691 2 306

1 082 3 117 Total cash and cash equivalents at the end of the year 3 456 1 691

1 082 3 117 Cash and cash equivalents at the end of the year 19 3 321 1 366– – Transferred to assets classified as held-for-sale 135 325

Cash flows from discontinued operations(100) (39) Cash flows from operating activities 389 (3)

(2) 4 Cash flows from investing activities (284) 1 71464 35 Cash flows from financing activities 706 (1 894)

(38) – Net increase/(decrease) in cash and cash equivalents 811 (183)

COMPANY GROUP


CASH FLOW STATEMENTSfor the year ended 31 March 2007

SEGMENTAL ANALYSISfor the year ended 31 March 2007


Based on risk and returns the Directors consider that the primary reporting format is by business segment. The Group is organised into different operating divisions and subsidiaries. This is the basis on which the Group reports its primary segment information. The secondary reporting format is by geographic analysis and the Directors consider that, with the exception of Aviation, there is only one geographic segment, being the Republic of South Africa.

Group Rail Maritime

2007 2006 2007 2006 2007 2006Restated Restated Restated

R million R million R million R million R million R million

External revenue 50 301 48 261 15 272 16 545 9 780 8 738Internal revenue – – 6 941 3 391 424 2

Total segment revenue 50 301 48 261 22 213 19 936 10 204 8 740Revenue for discontinued operations (22 087) (22 227) (323) (2 157) – –

Revenue for continuing operations 28 214 26 034 21 890 17 779 10 204 8 740Net operating expenses for continuing operationsexcluding depreciation and amortisation (16 726) (15 733) (17 065) (14 443) (4 016) (3 696)

Total net operating expenses (38 829) (36 900) (17 633) (16 864) (4 016) (3 696)Discontinued operations 22 103 21 167 568 2 421 – –

Profit/(loss) from operations before depreciation and amortisation 11 488 10 301 4 825 3 336 6 188 5 044

Depreciation and amortisation for continuing operations (3 018) (2 163) (1 818) (1 017) (754) (706)

Total depreciation and amortisation (3 020) (3 240) (1 820) (1 017) (754) (706)Discontinued operations 2 1 077 2 – – –

Profit/(loss) from operations before items listed below 8 470 8 138 3 007 2 319 5 434 4 338Profit/(loss) on sale of interests in businesses and dividends received for continuing operations 36 414 – (23) 2 –

Total profit/(loss) on sale of interests in businesses and dividends received 1 673 563 – (23) 2 –Discontinued operations (1 637) (149) – – – –

(Impairments)/reversal of impairment of assets for continuing operations (232) (124) (42) (127) (26) (20)

Total (impairments)/reversal of impairment of assets (218) (77) (42) (127) (26) (20)Discontinued operations (14) (47) – – – –

Fair value adjustments for continuing operations 2 385 815 117 42 425 278

Total fair value adjustments 2 454 1 089 117 43 425 278Discontinued operations (69) (274) – (1) – –

Segment profit/(loss) from continuing operations before net finance costs 10 659 9 243 3 082 2 211 5 835 4 596Finance costs for continuing operations (2 624) (2 668) (1 257) (971) (530) (546)

Total finance costs (3 062) (3 352) (1 257) (972) (530) (546)Discontinued operations 438 684 – 1 – –

Finance income for continuing operations 187 262 14 22 365 184

Total finance income 304 418 14 80 365 184Discontinued operations (117) (156) – (58) – –

Segment profit/(loss) before taxation from continuing operations 8 222 6 837 1 839 1 262 5 670 4 234Taxation (1 902) (2 042) (626) (808) (1 681) (1 412)

Total taxation (2 203) (2 117) (626) (808) (1 681) (1 412)Discontinued operations 301 75 – – – –

Segment profit/(loss) after taxation from continuing operations 6 320 4 795 1 213 454 3 989 2 822Income from associates of continuing operations 2 33 – – – –

Total income from associates 4 285 – – – –Discontinued operations (2) (252) – – – –

Profit/(loss) from continuing operations 6 322 4 828 1 213 454 3 989 2 822Profit/(loss) from discontinued operations including profiton disposal of discontinued operations and impairments 1 082 102 (247) (206) – –

Profit for the period 7 404 4 930 966 248 3 989 2 822Minority interests (17) (32) – – – –

Segment profit/(loss) for the year attributable to equity holder 7 387 4 898 966 248 3 989 2 822

Other information***Segment assets 77 106 76 966 30 499 23 759 26 102 22 655Investments in associates 148 1 380 – – 2 4

Consolidated total assets 77 254 78 346 30 499 23 759 26 104 22 659

Segment liabilities 37 612 47 485 17 774 12 097 2 635 3 641Income taxation liabilities 502 1 283 (142) 509 1 549 1 345Deferred taxation liabilities 1 707 52 1 625 499 664 265

Consolidated total liabilities 39 821 48 820 19 257 13 105 4 848 5 251

Capital expenditure 11 674 6 601 8 010 4 003 2 875 1 569

* Other operations incorporates all other operating divisions and subsidiaries and Company/Group adjustments and reclassifications.** Prior to set-off of pre-delivery payments refunded on South African Airways (Pty) Ltd aircraft amounting to R 236 million.*** Including discontinued operations.


Other IntercompanyPipeline Aviation Road Property operations* elimination

2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006Restated Restated Restated Restated Restated Restated

R million R million R million R million R million R million R million R million R million R million R million R million

1 216 1 058 21 960 19 936 1 112 1 009 165 215 796 760 – –2 – – 361 477 621 90 75 2 047 2 530 (9 981) (6 980)

1 218 1 058 21 960 20 297 1 589 1 630 255 290 2 843 3 290 (9 981) (6 980)– – (20 645) (19 329) (1 589) (1 604) – – (7) (34) 477 897

1 218 1 058 1 315 968 – 26 255 290 2 836 3 256 (9 504) (6 083)

(287) (198) (1 007) (661) – (20) (194) (176) (3 415) (2 938) 9 258 6 399

(287) (198) (21 518) (18 845) (1 258) (1 197) (194) (176) (3 395) (2 966) 9 472 7 042– – 20 511 18 184 1 258 1 177 – – (20) 28 (214) (643)

931 860 308 307 – 6 61 114 (579) 318 (246) 316

(259) (237) (59) (50) – – (31) (27) (121) (126) 24 –

(259) (237) (803) (896) (245) (231) (31) (27) 868 (126) 24 –– – 744 846 245 231 – – (989) – – –

672 623 249 257 – 6 30 87 (700) 192 (222) 316

– – – – – – (1) – 47 693 (12) (256)

– – – – – – (1) – 1 684 842 (12) (256)– – – – – – – – (1 637) (149) – –

– – – (24) – (6) 1 (5) (165) 58 – –

– – 17 23 (1) (6) 1 (5) (167) 58 – –– – (17) (47) 1 – – – 2 – – –

– – 3 38 – – 198 86 1 642 371 – –

– – 72 311 – – 198 86 1 642 371 – –– – (69) (273) – – – – – – – –

672 623 252 271 – – 228 168 824 1 314 (234) 60(301) (298) (88) (101) – (1) (10) – (4 987) (4 446) 4 549 3 695

(301) (298) (526) (782) (48) (48) (10) – (4 987) (4 446) 4 597 3 740– – 438 681 48 47 – – – – (48) (45)

73 47 2 10 – 7 30 17 4 280 3 667 (4 577) (3 692)

73 47 130 147 8 12 30 17 4 281 3 671 (4 597) (3 740)– – (128) (137) (8) (5) – – (1) (4) 20 48

444 372 166 180 – 6 248 185 117 535 (262) 63(107) (161) – – – (3) (7) (102) 519 444 – –

(107) (161) (42) (12) (47) (66) (7) (102) 307 444 – –– – 42 12 (47) 63 – – 212 – – –

337 211 166 180 – 3 241 83 636 979 (262) 63– – – – – – – – 2 33 – –

– – – – – – – – 4 285 – –– – – – – – – – (2) (252) – –

337 211 166 180 – 3 241 83 638 1 012 (262) 63

– – (876) 63 2 91 – – 2 442 (96) (235) 250

337 211 (710) 243 (2) 94 241 83 3 080 916 (497) 313– – – – (17) (32) – – – – – –

337 211 (710) 243 (19) 62 241 83 3 080 916 (497) 313

4 555 3 793 916 14 589 1 744 1 877 1 757 1 607 15 567 15 042 (4 034) (6 356)– – – – – – 3 4 143 1 372 – –

4 555 3 793 916 14 589 1 744 1 877 1 760 1 611 15 710 16 414 (4 034) (6 356)

1 423 1 502 1 077 13 667 840 979 (82) 39 16 804 17 842 (2 859) (2 282)157 179 – – – – (14) 31 (1 048) (781) – –466 (88) (9) – – – 86 81 (1 125) (705) – –

2 046 1 593 1 068 13 667 840 979 (10) 151 14 631 16 356 (2 859) (2 282)

310 220 341 438** 302 446 30 11 321 347 (515) (433)

Rail includes Freight Rail, Rail Engineering, Shosholoza Meyl, Luxrail and Metrorail.Maritime includes National Ports Authority and Port Terminals.Aviation includes South African Airways (Pty) Ltd and South African Express Airways (Pty) Ltd.Road includes freightdynamics, Autopax Passenger Services (Pty) Ltd and Viamax (Pty) Ltd.Property includes Transnet Properties, Transhold Properties (Pty) Ltd and Proptrade (Pty) Ltd.

NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2007


1. DISCONTINUED OPERATIONSThe profit from discontinued operations, including profit on disposal of discontinued operations and impairments, comprises:

63 (76) (Loss)/profit from discontinued operations (refer below) (349) (47)Profit on disposal of discontinued operations, net

149 1 073 of taxation 4.3 1 433 149Impairments – Lower of carrying value and fair

– – value less costs to sell 4.4 (2) –

212 997 1 082 102

(Loss)/profit from discontinued operations2 703 1 001 Revenue 2 22 087 22 227

Net operating expenses excluding depreciation (2 657) (1 074) and amortisation 3 (22 103) (21 167)

(Loss)/profit from operations before depreciation46 (73) and amortisation (16) 1 060

(32) (2) Depreciation and amortisation 4.1 (2) (1 077)

(Loss)/profit from operations before the items 14 (75) listed below 4.2 (18) (17)

– (1) Reversal of impairment/(impairment) of assets 4.4 16 47– – Fair value adjustments 5 69 274

14 (76) Profit/(loss) from operations before net finance costs 67 304(1) – Finance costs 6 (438) (684)

50 – Finance income 7 117 156

63 (76) (Loss)/profit before taxation (254) (224)– – Taxation 8 (97) (75)

63 (76) (Loss)/profit after taxation (351) (299)Income from associates 13 2 252

63 (76) (Loss)/profit for the year (349) (47)

Attributable to the shareholder (366) (79)Attributable to minority interests 23 17 32

(For details of which entities are discontinued, refer annexure C.)

2. REVENUE25 724 26 606 Rendering of services 48 683 45 765

608 511 Rental income 844 951304 236 Finance income from lending activities 236 304188 538 Construction contracts (refer note 28) 538 188

14 – Notional revenue on embedded derivatives – 141 039 – Other – 1 039

27 877 27 891 50 301 48 261(2 703) (1 001) Discontinued operations (22 087) (22 227)

25 174 26 890 Continuing operations 28 214 26 034

Other revenue in the prior year was a contractual payment from the South African Government through the South African RailwayCommuter Corporation (SARCC) of R1 039 million. This payment was applied in the operation of the commuter rail network operatedby Metrorail, which was disposed of at 26 December 2005.

COMPANY GROUP



3. NET OPERATING EXPENSES EXCLUDING DEPRECIATION AND AMORTISATION

113 99 Accommodation and refreshments 798 784439 829 Electronic data costs 1 308 982

2 467 2 437 Energy costs 8 567 7 790162 145 Health and sanitation 228 237154 193 Insurance 315 297890 576 Maintenance 769 633

Managerial and technical consulting 568 773 fees (refer note 4.2) 943 701

1 540 288 Material costs 2 008 2 742– – Navigation, landing and parking fees 1 131 1 056

968 1 461 Operating lease charges (refer note 4.2) 3 872 3 168– – Passenger handling, rescheduling and airline costs 1 718 1 525

9 062 7 979 Personnel costs 11 303 12 532775 977 Post-retirement benefit obligation costs 1 285 1 027

60 49 Printing and stationery 93 127(Profit)/loss on disposal of property, plant and

19 (6) equipment (refer note 4.2) (27) (267)54 69 Promotions and advertising 540 745

470 268 Security 365 565– – Share-based payments expense – 2

90 18 Telecommunications 48 13311 45 Transport 744 184

684 1 070 Other 2 821 1 937

18 526 17 270 38 829 36 900(2 657) (1 074) Discontinued operations (22 103) (21 167)


4.1 DEPRECIATION AND AMORTISATION2 065 2 879 Depreciation (refer annexure B) 2 939 3 187

1 825 2 580 Depreciation – Owned assets at historic cost 2 615 2 914

– – Aircraft 42 796184 301 Land, buildings and structures 301 235274 295 Machinery, equipment and furniture 295 315134 242 Permanent way and works 240 133141 120 Pipeline networks 119 141349 409 Port facilities 405 349696 1 188 Rolling stock and containers 1 188 698

47 25 Vehicles 25 247

COMPANY GROUP

2006 2007 2007 2006Restated RestatedR million R million R million R million

NOTES TO THE ANNUAL FINANCIAL STATEMENTS continuedfor the year ended 31 March 2007


4.1 DEPRECIATION AND AMORTISATION (continued)Depreciation (refer annexure B) (continued)

240 244 Depreciation – Owned assets revalued portion 244 240

73 118 Pipeline networks 118 73167 126 Port facilities 126 167

– 55 Depreciation – Leased assets 80 33

– 16 Rolling stock and containers 16 –– 39 Machinery, equipment and furniture 39 –– – Aircraft 25 33

(31) (2) Discontinued operations (2) (1 076)


51 81 Amortisation of intangible assets (refer note 11) 81 53

(23) – Development – (23)74 81 Software and licenses 81 76

(1) – Discontinued operations – (1)

50 81 Continuing operations 81 52

2 084 2 958 Total depreciation and amortisation 3 018 2 163

4.2 PROFIT FROM OPERATIONS BEFORE PROFIT OF SALEOF INTEREST IN BUSINESSES, IMPAIRMENT OF ASSETS,DIVIDENDS RECEIVED, FAIR VALUE ADJUSTMENTS AND NET FINANCE COSTSis stated after taking into account the following amounts:Auditors’ remuneration

80 46 Group auditors 69 103

58 47 Audit fees 69 805 (8) Audit fees – prior year (overprovision)/underprovision (7) 5

15 4 Fees for other services 4 152 3 Expenses 3 3

(2) (1) Discontinued operations (22) (26)


568 773 Managerial and technical consulting fees 943 701(31) (8) Discontinued operations (176) (155)


COMPANY GROUP



4.2 PROFIT FROM OPERATIONS BEFORE PROFIT OF SALEOF INTEREST IN BUSINESSES, IMPAIRMENT OF ASSETS,DIVIDENDS RECEIVED, FAIR VALUE ADJUSTMENTS AND NET FINANCE COSTS (continued)

968 1 461 Operating lease charges 3 872 3 168

33 1 Aircraft 2 608 2 005129 588 Land, buildings and structures 678 207806 872 Other 586 956

(95) (62) Discontinued operations (2 779) (2 214)

873 1 399 Continuing operations 1 093 954

19 (6) (Profit)/loss on disposal of property, plant and equipment (27) (267)4 (10) Discontinued operations 11 304

23 (16) Continuing operations (16) 37

15 68 Research and development costs 68 17– – Discontinued operations (1) (2)


Directors’ and executives’ emoluments (full details 47 56 are disclosed in the report of the Directors) 79 76

11 14 Executive Directors 34 365 6 Non-executive Directors 9 9

31 36 Senior executives 36 31

– Discontinued operations (20) (25)


471 1 073 4.3 PROFIT ON DISPOSAL OF INTEREST IN BUSINESSES 1 433 478

– – Profit on sale of interest in South African Airways (Pty) Ltd* 938 –– 1 230 Profit on sale of interest in V&A Waterfront Holdings (Pty) Ltd 711 –

(Loss)/profit on sale of interest in Equity – 47 Aviation (Pty) Ltd (12) –

Capital gains taxation on disposal of interest in V&A Waterfront Holdings (Pty) Ltd and Equity

– (204) Aviation (Pty) Ltd (204) –67 – Profit on sale of interest in divisions and operations – 67

404 – Disposal of investment in MTN Group Ltd – 404– – Other – 7

(149) (1 073) Discontinued operations (1 433) (149)

322 – Continuing operations – 329

4.4 IMPAIRMENT/(REVERSAL OF IMPAIRMENT) OF ASSETS197 81 Impairment of assets 218 77

64 115 Property, plant and equipment 154 16234 (154) Loss-making subsidiaries and associates – 141

(101) 120 Trade and other receivables and loans and advances 64 (80)

– (1) Discontinued operations – reversal 14 47


* Excluding the effect of the share buy-back of R2 049 million (refer note 21). The total effect is a R1 011 million decrease in net equity.

COMPANY GROUP




5. FAIR VALUE ADJUSTMENTS(2) 44 Derivative fair value adjustments 245 271– – Revaluation of C class preference shares (refer note 14) 1 713 500

373 483 Fair value adjustment of investment properties 490 372(136) (86) Fair value adjustments to treasury bonds (86) (136)

– 233 Gains on hedging instruments 94 –43 (11) Other fair value adjustments (2) 82

278 663 2 454 1 089– – Discontinued operations (69) (274)

278 663 Continuing operations 2 385 815

Reconciliation of fair value adjustments to note 14278 663 Fair value adjustments per above 2 454 1 089

14 – Embedded derivative recognised in revenue (refer note 2) – 14Fair value adjustment of investment properties

(373) (483) (refer note 10) (490) (372)136 86 Treasury bonds 86 136(27) – Other fair value adjustments – (4)

28 266 Fair value adjustments 2 050 863

28 266 – Per note 14 1 981 863– – – Per annexure C, note e 69 –

6. FINANCE COSTS21 32 Net foreign exchange (gains)/losses on translation (32) 233

219 303 Discounts on bonds amortised 303 2192 246 2 077 Interest cost 2 791 2 900

2 486 2 412 3 062 3 352(1) – Discontinued operations (438) (684)


7. FINANCE INCOME276 160 Interest received from other investments 304 418

76 65 Interest received from subsidiaries – –

352 225 304 418(50) – Discontinued operations (117) (156)


COMPANY GROUP



8. TAXATIONSouth African normal taxation

1 688 971 – Current year 1 004 1 811– – – Prior year 41 12

Deferred taxation (refer note 27 and annexure C, note n)276 1 001 – Current year 1 034 287(58) (36) – Prior year (36) (58)

Secondary taxation on companies– – – Current year 3 –

Capital gains taxation58 150 – Current year 150 58

Foreign taxation– – – Current year 7 7

1 964 2 086 2 203 2 117– (204) Discontinued operations (301) (75)


% % Reconciliation of taxation rate % %

29,00 29,00 Standard rate – South African normal taxation 29,00 29,003,77 (0,73) Adjustment for differences (6,07) 2,31

3,77 (2,27) (Expenses)/income not included for taxation purposes (9,64) 3,730,96 2,03 Capital gains taxation 1,56 0,86

– – Secondary taxation on companies 0,03 –– – Deferred taxation not provided 2,74 (1,60)– – Assessed loss utilised (0,81) –

(0,96) (0,49) Adjustment to prior year deferred taxation charge (0,37) (0,86)– – Adjustment to prior year current taxation charge 0,42 0,18

32,77 28,27 Effective rate of taxation 22,93 31,31

– 16,99 Discontinued operations 21,76 100,0033,97 30,46 Continuing operations 23,13 29,87

R million R million R million R million

– – Total estimated taxation losses 552 12 380– – Discontinued operations (95) (11 905)

– – Continuing operations 457 475

COMPANY GROUP




9. PROPERTY, PLANT AND EQUIPMENT (refer annexure B)Property, plant and equipment is stated at historical cost except for pipeline networks and port facilities,which are stated at revalued amounts.

44 617 53 314 Net book value 53 826 45 181

70 456 80 952 Gross carrying value 82 039 71 505(25 839) (27 638) Accumulated depreciation and impairment (28 213) (26 324)

Comprising:Historical cost

42 135 49 050 Gross carrying value 50 192 43 184

26 26 – Aircraft 1 123 1 0459 571 9 938 – Land, buildings and structures 9 958 9 5753 857 3 482 – Machinery, equipment and furniture 3 533 3 9147 672 7 935 – Permanent way and works 7 880 7 617

13 142 17 715 – Rolling stock and containers 17 715 13 142458 578 – Motor vehicles 585 445

7 409 9 376 – Capital work in progress 9 398 7 446

(11 293) (11 817) Accumulated depreciation (12 371) (11 764)

(25) (25) – Aircraft (536) (469)(1 446) (1 707) – Land, buildings and structures (1 709) (1 447)(2 500) (1 953) – Machinery, equipment and furniture (1 991) (2 542)(2 096) (2 315) – Permanent way and works (2 313) (2 096)(4 836) (5 415) – Rolling stock and containers (5 415) (4 836)

(390) (402) – Motor vehicles (407) (374)

(562) (480) Accumulated impairment (506) (576)

(299) (121) – Land, buildings and structures (135) (300)(27) (30) – Machinery, equipment and furniture (41) (39)(54) (127) – Rolling stock and containers (127) (54)

– – – Motor vehicles (1) (1)(182) (202) – Capital work in progress (202) (182)

Net book value of property, plant and equipment 30 280 36 753 stated at historical cost 37 315 30 844

Revaluation28 321 31 902 Gross carrying value 31 847 28 321

9 335 10 377 – Pipeline networks 10 371 9 33518 986 21 525 – Port facilities 21 476 18 986

(13 390) (14 737) Accumulated depreciation (14 732) (13 390)

(6 094) (6 649) – Pipeline networks (6 648) (6 094)(7 296) (8 088) – Port facilities (8 084) (7 296)

COMPANY GROUP



9. PROPERTY, PLANT AND EQUIPMENT (refer annexure B)(continued)

(594) (604) Accumulated impairment (604) (594)

(152) (153) – Pipeline networks (153) (152)(442) (451) – Port facilities (451) (442)

Net book value of property, plant and equipment 14 337 16 561 stated at revalued amounts 16 511 14 337

44 617 53 314 Total net book value 53 826 45 181

Included in aircraft are capitalised leased assets – – with a net carrying value of 9 4 706

These capitalised aircrafts are encumbered as security for the repayment of lease commitments (refer note 25 and 31.3).

Land, building and structuresA register of land, buildings and structures is open for inspection at the Company.

Rolling stockIncluded in rolling stock are locomotives that were leased and leased back. The locomotives are leased to a third party, refurbished and then leased to a financier who in turn leases the assets back to the Company. This has been treated as a structured loan. This loan is secured by virtue of the lease agreements and collateral covering bond over the refurbished locomotives.

The book value of the refurbished locomotives which 1 045 1 390 are so encumbered amounts to 1 390 1 045

Included in rolling stock assets are capitalised leased 420 405 assets with a carrying value of 405 420

These assets were part of a sale and lease back arrangement giving rise to a finance lease entered into in 1997. The present value of the lease commitments has been settled in full.

Pipeline networksThe Group’s policy is to perform a revaluation of its pipeline networks every five years and an internal index revaluation in the intervening years. An external revaluation was performed in the previous year, by Arthur D Little Inc, an independent firm of professional valuers on the basis of the modern equivalent net asset value. The current year’s revaluation resulted in a net increase of R662 million (2006: R102 million) to the carrying value of the Group’s pipeline networks, which has been adjusted accordingly.

2 135 2 032 The historic carrying values of these assets amount to 2 032 2 135

COMPANY GROUP




9. PROPERTY, PLANT AND EQUIPMENT (refer annexure B)(continued)Port facilitiesThe Group’s policy is to perform a revaluation of its port facilities every five years and an internal index revaluationin the intervening years. The last external revaluation was performed in the financial year ended 31 March 2003, by Nedcor, Tirello and Arcus Engineering, a consortium of professional valuers using the depreciated replacement cost to the port industry. This valuation resulted in a net increase of R1 072 million (2006: R383 million) to the carrying value of the Group’ port facilities, which has been adjusted accordingly.

6 964 7 614 The historic carrying values of these assets amount to 7 614 6 964

10. INVESTMENT PROPERTIES1 964 2 337 Fair value at the beginning of the year 2 369 1 997

373 483 Increase in fair value during the year 490 372

2 337 2 820 Fair value at the end of the year 2 859 2 369

The fair value of the Group’s investment properties at 31 March 2007 was arrived at on the basis of valuations carried out at that date by Propnet’s valuers.The valuations, which conform to the Property Valuers Profession Act, 47 of 2000, were arrived at by capitalising the first year’s normalised net operating income at a market derived capitalisation rate.The gross property rental income earned by the Group from its investment properties, all of which are leased out under gross operating leases, amounted to R387 million (2006: R343 million).Direct operating expenses arising on the investment properties during the year amounted to R 169 million (2006: R150 million).

11. INTANGIBLE ASSETS AND GOODWILL168 204 Intangible assets and goodwill 207 172

518 555 Cost 637 614(350) (351) Accumulated amortisation and impairment (430) (442)

Comprising:Finite life intangible assets

168 204 Software and licences: carrying value 207 172

518 555 Cost 623 600

456 518 Balance at the beginning of the year 600 58665 6 Additions 6 75

(13) (45) Disposals (49) (15)(4) (36) Transferred to assets classified as held-for-sale (36) (54)8 102 Transfers in from property, plant and equipment 102 86 10 Transfers in from subsidiaries – –

(350) (351) Accumulated amortisation and impairment (416) (428)

(308) (350) Balance at the beginning of the year (428) (431)13 44 Disposals 48 15

(51) (81) Amortisation (81) (53)3 25 Transferred to assets classified as held-for-sale 25 45

(4) 20 Transfers in from property, plant and equipment 20 (4)(3) (9) Transfers in from subsidiaries – –

COMPANY GROUP



COMPANY GROUP


11. INTANGIBLE ASSETS AND GOODWILL (continued)Indefinite life intangible assets

– – Goodwill: carrying value – –

– – Cost 14 14

– – Balance at the beginning and end of the year 14 111– – Transferred to assets classified as held-for-sale – (97)

– – Accumulated impairment (14) (14)

– – Balance at the beginning of the year (14) (111)– – Transferred to assets classified as held-for-sale – 97

Software and licences are assessed as having a finite life and are amortised on a straight-line basis over a period of 3 to 5 years.

12. INVESTMENTS IN SUBSIDIARIES (refer annexure D)2 846 87 Shares at cost

10 279 1 476 Net amounts owing by subsidiaries

13 125 1 563(10 622) (1 189) Provision for accumulated impairment and losses

2 503 374(2 224) – Transferred to assets classified as held-for-sale

279 374

Loans to subsidiaries that have been subordinated amount to R508 million (2006: R501 million). In addition, the Company has issued letters of support.The financial support available in terms of these letters is as follows:

421 336 – South African Express Airways (Pty) Ltd80 69 – Autopax Passenger Services (Pty) Ltd

– 104 – Transhold Properties (Pty) Ltd– 85 – Transwerk Foundries (Pty) Ltd

1 500 – – South African Airways (Pty) Ltd

2 001 594

13. INVESTMENTS IN ASSOCIATES AND JOINTVENTURES (refer annexure D)

81 28 47 98

792 81 Balance at the beginning of the year 98 1 242– 4 Acquisitions 4 –– – Equity earnings 4 285

(6) 19 Advances/(repayments) of loans 19 (6)(138) 2 Reversal of impairments/(current year impairments) – (141)

Transferred to assets classified as held-for-sale (567) (78) (refer annexure C) (78) (1 282)

Directors’ valuation of unlisted investments in 125 47 associates and joint ventures (continuing operations) 47 125

Total income from associates and joint ventures – – amounted to 4 285– – Discontinued operations 2 252

– – Continuing operations 2 33



14. DERIVATIVE FINANCIAL ASSETS AND LIABILITIESBoth the Company and the Group use approved financial instruments, in particular forward exchange contracts, cross-currency swaps, interest rate swaps and jet fuel derivatives to hedge the financial risks associated with underlying business activities. All derivative financial instruments have been recorded at fair value with the resulting gain or loss taken to the income statement.

304 513 Derivative financial assets 5 979 4 091

691 304 Opening balance 4 091 4 21713 240 Income statement credit 1 954 786

(400) (31) Derivatives raised and settled (66) (732)– – Transferred to assets classified as held-for-sale – (180)

510 405 Derivative financial liabilities 405 561

1 066 510 Opening balance 561 1 227(15) (26) Income statement credit (27) (77)

(541) (79) Derivatives raised and settled (129) (589)

28 266 Net income statement credit (refer note 5) 1 981 863

Comprise the following financial instruments:216 321 Non-current assets 321 217

38 166 Forward exchange contracts 166 38147 147 Cross-currency swaps and options 147 147

31 8 Interest rate swaps and options 8 31– – Other – 1

88 192 Current assets 5 658 3 874

18 84 Forward exchange contracts 84 1849 58 Cross-currency swaps and options 58 6221 16 Interest rate swaps and options 16 21

– – Jet fuel derivatives – 166– – C class preference shares* 5 500 3 787– 34 Other – –– – Transferred to assets classified as held-for-sale – (180)

370 240 Non-current liabilities 240 408


140 165 Current liabilities 165 153


* Includes the Group’s asset being an investment in “C” class preference shares which is owned by Newshelf 697 (Pty) Ltd in Newshelf 664 (Pty) Ltd.The share was subscribed for at a cost of R1 511 million as part of the sale process of the 309 million MTN Group Ltd shares. The value of thesepreference shares moves in concert with movements in the MTN Group Ltd’s share price in terms of a gain share redemption formula. The share hasbeen valued by a professional valuer. The effects of the fair valuation are disclosed in note 5.

COMPANY GROUP



14. DERIVATIVE FINANCIAL ASSETS AND LIABILITIES (continued)Fair value hedges of firm commitmentsDuring the current financial year the Group entered into fair value hedges of the foreign exchange risk on firm commitments of the Group to import items of equipment (ie locomotives and port equipment). The Group is settling the contract price of these items by making pre-determined progress payments (in foreign currency) to the relevant suppliers as specified milestones are achieved.At 31 March 2007, the Group held a series of forward exchange contracts as hedging instruments forthis purpose. These hedges were assessed as being effective.The fair values of these forward exchange contracts at 31 March 2007 are as follows:

– (36) Currency bought forward – Japanese yen (36) –– 49 Currency bought forward – Euros 49 –

The net fair value gain recognised in the income statement on these fair value hedges during the year was R13 million. This net fair value gain comprised a gain of R214 million on the firm commitments, and a loss of R201 million on the forward exchange contracts.The nominal values of these forward exchange contracts at 31 March 2007 are as follows:

– 2 139 Currency bought forward – Japanese yen 2 139 –– 501 Currency bought forward – Euros 501 –

– 2 640 2 640 –

million million million millionCurrency bought forward

– 28 608 Japanese yen 28 608 –– 56 Euros 56 –

COMPANY GROUP




15. LONG-TERM LOANS AND ADVANCES2 022 123 123 2 019

2 720 2 022 Balance at the beginning of the year 2 019 2 717134 772 Advances 772 152

(783) (1 297) Repayments (1 294) (803)108 (95) (Impairment)/reversal of impairment (95) 110

– (1 258) Transferred to non-current assets classified as held-for-sale (1 258) –Less: Short-term portion transferred to trade

(157) (21) and other receivables (21) (157)

Comprising:4 1 Directors’ and managers’ loans 1 3

5 4 Balance at the beginning of the year 3 42 – Capitalised interest/advances – 2

(3) (3) Repayments (2) (3)

2 001 117 Employee housing and other loans 117 2 002

2 636 2 001 Balance at the beginning of the year 2 002 2 634118 772 Advances 772 120

(674) (1 251) Repayments (1 252) (674)74 (126) (Impairment)/reversal of impairment (126) 75

– (1 258) Transfers to non-current assets classified as held-for-sale (1 258) –(153) (21) Less: Short-term portion (21) (153)

17 5 Other loans and advances 5 14

79 17 Balance at the beginning of the year 14 7914 – Advances – 30

(106) (43) Repayments (40) (126)34 31 Reversal of impairment 31 35(4) – Less: Short-term portion – (4)

2 022 123 123 2 019

Included in Directors’ and managers’ loans are the following loans to senior executives:Capitalised

Opening interest/ Total Totalbalance advances Repaid 2007 2006

R thousand R thousand R thousand R thousand R thousand

Mr SI Gama 325 34 (41) 318 325Mr CA Möller 369 33 (193) 209 369Mr T Morwe 580 31 (385)* 226 580Mr VD Kahla 304 – (304)** – 304

1 578 98 (923) 753 1 578

These loans are secured and bear variable interest that is linked to the prime interest rate. The current rates are 11% to 11,5% andrelate to housing loans.Repayment terms vary and are up to a maximum of 20 years.Housing loans are secured by first mortgage bonds over the related property and other guarantees.

* Included in repaid is R220 000 related to a car loan which has been transferred to an external institution.** Included in repaid is R304 000 related to a car loan which has been transferred to an external institution.

COMPANY GROUP



16. OTHER INVESTMENTS AND LONG-TERM FINANCIAL ASSETS

– – Listed investments at market value 131 5929 328 Other financial assets 329 29

– – Defeasance deposit – 485

29 328 460 573– – Transferred to assets classified as held-for-sale – (485)

29 328 Total long-term investments and long-term financial assets 460 88

Short-term portion of other investments including 657 703 market making positions held-for-trading 704 1 650(15) – Transferred to assets classified as held-for-sale – (1 007)

642 703 Total short-term investments 704 643

17. INVENTORIESAt weighted average cost

345 577 Raw materials 580 348124 481 Maintenance material 521 832

60 85 Consumables 86 6197 160 Finished goods 164 9769 169 Work in progress* 169 88(4) (272) Provision for stock obsolescence (272) (335)

691 1 200 1 248 1 091

At net realisable value84 – Raw materials – 84

592 522 Maintenance material 522 592113 25 Consumables 25 237

29 59 Finished goods 59 49(159) (55) Provision for stock obsolescence (55) (188)

659 551 551 774

(2) (1) Transferred to assets classified as held-for-sale (1) (469)

1 348 1 750 1 798 1 396

* Included in work in progress are costs for construction

contracts in progress (refer note 28)

18. TRADE AND OTHER RECEIVABLES2 933 2 953 Trade receivables** 3 170 4 824

926 759 Prepayments and other amounts receivable 818 2 208157 180 Short-term portion of loans and advances 180 157

(121) (176) Transferred to assets classified as held-for-sale (176) (3 040)

3 895 3 716 3 992 4 149

** Included in trade receivables are amounts due from customers in respect of construction contracts(refer note 28).

COMPANY GROUP




19. CASH AND CASH EQUIVALENTS1 114 3 142* Cash and cash equivalents 3 347* 1 732

– – Transferred to assets classified as held-for-sale – (332)

1 114 3 142 3 347 1 400

(32) (25) Bank overdrafts (26) (41)– – Transferred to assets classified as held-for-sale – 7

(32) (25) (26) (34)

* Included in Group cash and cash equivalents and short-term borrowings is cash of R1,7 billion held on behalf of South African Airways (Pty) Ltd, which is not available for use by the Group.

20. ASSETS CLASSIFIED AS HELD-FOR-SALE AND LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS CLASSIFIED AS HELD-FOR-SALE (refer annexure C)Non-current assets classified as held-for-sale

160 452 Property, plant and equipment 452 160– 11 Intangible assets and goodwill 10 –

2 224 461 Investments in subsidiaries – –567 84 Investments in associates and joint ventures 101 1 282

– 1 258 Loans and advances 1 258 –15 – Other investments – 15

– 1 Inventories 1 –– 176 Trade and other receivables 176 –

2 966 2 443 1 998 1 457

Effect of the sale of disposal groupsAssets classified as held-for-sale

– – Autopax Passenger Services (Pty) Ltd 75 103371 341 freightdynamics 341 371

– – Freight Dynamics Guard Risk 21 17– – South African Airways (Pty) Ltd – 13 673– – Viamax (Pty) Ltd 1 328 1 192

(1) 37 Effect of intercompany eliminations and other adjustments 149 (73)

370 378 1 914 15 283

Total assets transferred to non-current assets 3 336 2 821 classified as held-for-sale 3 912 16 740

Liabilities directly associated with assets classified as held-for-sale

– (68) Trade and other payables (68) –– (17) Provisions (17) –

– (85) (85) –

Effect of the sale of disposal groups– – Autopax Passenger Services (Pty) Ltd (124) (119)

(556) (626) freightdynamics (626) (556)– – Freight Dynamics Guard Risk (8) (6)– – South African Airways (Pty) Ltd – (14 888)– – Viamax (Pty) Ltd (591) (599)

464 498 Effect of intercompany eliminations and other adjustments 1 004 3 236

(92) (128) (345) (12 932)

Total liabilities transferred to liabilities directly associated (92) (213) with assets classified as held-for-sale (430) (12 932)

COMPANY GROUP



21. ISSUED CAPITALAuthorised

30 000 30 000 30 000 000 000 ordinary par value shares of R1 each 30 000 30 000

Issued12 660 986 310 ordinary par value shares of R1 each

14 710 12 661 (2006: 14 709 986 310) 12 661 14 710

During the year, the Company repurchased a total of 2 049 000 000 of its issued shares at par value of R1 each as part of the sale of South African Airways (Pty) Ltd.

The unissued share capital is under the control of the South African Government, the sole shareholder of the Company.

22. RESERVES5 702 7 163 Revaluation reserves 7 257 5 873

5 047 6 010 Revaluation of port facilities 6 010 5 047

4 671 5 047 Balance at the beginning of the year 5 047 4 671383 1 072 Revaluation during the current year 1 072 383

(7) (109) Realised through disposal (109) (7)

1 318 1 976 Revaluation of pipeline networks 1 976 1 318

1 216 1 318 Balance at the beginning of the year 1 318 1 216102 662 Revaluation during the current year 662 102

– (4) Realised through disposal (4) –

– – MTN Group Ltd – revaluation of investment to market value – –

245 – Balance at the beginning of the year – 245149 – Revaluation during the current year – 149

Release of the surplus on the MTN shares to the (394) – income statement – (394)

– – ALL Group Ltd – revaluation of investment to market value 124 52

– – Balance at the beginning of the year 52 18– – Revaluation during the current year 72 34

– – V&A Waterfront Holdings (Pty) Ltd – fair value adjustment – 119

– – Balance at the beginning of the year 119 119– – Realised through disposal (119) –

Deferred taxation impact of items relating to (663) (823) revaluation reserves (853) (663)

– – Foreign currency translation reserve (8) 28

1 – Balance at the beginning of the year 28 (8)(1) – Arising during the current year (36) 36

COMPANY GROUP




22. RESERVES (continued)2 073 3 285 Net actuarial gains on post-retirement benefit obligations 3 282 2 070

2 918 4 625 Actuarial gains on post-retirement benefit obligations 4 622 2 915

416 2 918 Balance at the beginning of the year 2 915 4162 502 1 707 Current year movement 1 725 2 499

– – Realised through disposal (18) _

(845) (1 340) Deferred taxation impact of net actuarial gains (1 340) (845)

1 092 250 Other reserves 249 1 106

8 5 Other transfers 4 8839 – Profit on sale of interest in South African Airways (Pty) Ltd – 853

Share of pension fund surplus (retained for 245 245 application against pensioners) 245 245

3 681 9 817 Accumulated profit 13 870 5 626

(831) 3 681 Balance at the beginning of the year 5 626 200(4) – IFRIC 4 adjustments – (4)

457 – Investment properties adjustments – 457Transfers to accumulated profit on sale of interest

– 839 in South African Airways (Pty) Ltd 853 –30 3 Other transfers to accumulated profit 4 75

4 029 5 294 Profit for the year attributable to equity holder 7 387 4 898

12 548 20 515 24 650 14 703

Reconciliations of movement in capital and reservesForeign

currency ActuarialIssued Revaluation translation gains and Accumulated Minoritycapital reserves reserve losses Other profit/(loss) interests Total

R million R million R million R million R million R million R million R million

GROUPRestated balances at 1 April 2005 14 710 5 675 (8) 296 1 179 653 88 22 593

Opening balance as previously reported 14 710 4 641 (8) 296 1 179 200 88 21 106IFRIC 4 adjustments – – – – – (4) – (4)Deferred taxation adjustments – 1 034 – – – – – 1 034Investment properties adjustments – – – – – 457 – 457

Total recognised income and expense – 267 36 2 499 2 4 898 32 7 734

Opening balance as previously reported – 267 36 2 499 2 4 539 32 7 375IFRIC 4 adjustments – – – – – 20 – 20Investment propertiesadjustments – – – – – 339 – 339

Taxation effect of items recorded in equity – (69) – (725) – – – (794)

Opening balance as previously reported – (43) – (725) – – – (768)Deferred taxation adjustments – (26) – – – – – (26)

Dividends paid – – – – – – (7) (7)Transferred to accumulated profit – – – – (75) 75 – –

COMPANY GROUP



Foreign currency Actuarial

Issued Revaluation translation gains and Accumulated Minoritycapital reserves reserve losses Other profit/(loss) interests Total


22. RESERVES (continued)GROUP (continued)Restated balances at 31 March 2006 14 710 5 873 28 2 070 1 106 5 626 113 29 526

Shares redeemed (2 049) – – – – – – (2 049)Total recognised income and expense – 1 574 (36) 1 707 – 7 387 17 10 649Taxation effect of itemsrecorded in equity – (190) – (495) – – – (685)Dividends paid – – – – – – (8) (8)Transferred to accumulatedprofit – – – – (857) 857 – –

Balances at 31 March 2007 12 661 7 257 (8) 3 282 249 13 870 122 37 433

COMPANYRestated balances at 1 April 2005 14 710 5 538 1 296 1 122 (378) – 21 289

Opening balance as previously reported 14 710 4 504 1 296 1 122 (831) – 19 802IFRIC 4 adjustments – – – – – (4) – (4)Deferred taxation adjustments – 1 034 – – – – – 1 034Investment properties adjustments – – – – – 457 – 457

Total recognised income and expense – 233 (1) 2 502 – 4 029 – 6 763

Opening balance as previously reported – 233 (1) 2 502 – 3 670 – 6 404IFRIC 4 adjustments – – – – – 20 – 20Investment properties adjustments – – – – – 339 – 339

Taxation effect of items recorded in equity – (69) – (725) – – – (794)

Opening balance as previously reported – (43) – (725) – – – (768)Deferred taxation adjustments – (26) – – – – – (26)

Transferred to accumulated profit – – – – (30) 30 – –

Restated balances at 31 March 2006 14 710 5 702 – 2 073 1 092 3 681 27 258

Shares redeemed (2 049) – – – – – – (2 049)Total recognised income and expense – 1 621 – 1 707 – 5 294 – 8 622Taxation effect of items recorded in equity – (160) – (495) – – – (655)Transferred to accumulated profit – – – – (842) 842 – –

Balances at 31 March 2007 12 661 7 163 – 3 285 250 9 817 – 33 176



23. MINORITY INTERESTSBalance at the beginning of the year 113 88Total recognised income attributable to minorities 17 32Dividends paid to minorities (8) (7)

Total minority interests directly associated with assets and liabilities classified as held-for-sale 122 113

24. POST-RETIREMENT BENEFIT OBLIGATIONS4 348 2 422 2 422 4 348

7 113 4 348 Balance at the beginning of the year 4 348 7 23899 202 Current year provision 218 7211 – Acquisition of Protekon business – –

(362) (421) Settlements during the year (419) (362)(2 502) (1 707) Actuarial gains (1 725) (2 499)

Transferred to liabilities directly associated with (11) – assets classified as held-for-sale – (101)

Comprising:– – Transnet Pension Fund (refer note 33.1.2) – –

Transnet Second Defined Benefit Fund 1 628 – (refer note 33.1.3) – 1 628

116 113 Top Management Pensions (refer note 33.1.4) 113 116Workmen’s Compensation Act pensioners

247 238 (refer note 33.1.4) 238 247(1) (4) Black Widows’ Pensions (refer note 33.1.5) (4) (1)

Flight Deck Crew Pension Fund – – (refer annexure C, note k.(i)) – 5

Flight Deck Crew Disability Benefit Fund – – (refer annexure C, note k.(iv)) – 35

SATS pensioners’ post-retirement medical benefits1 607 1 369 (refer note 33.2.1) 1 369 1 607

Transnet employees post-retirement medical benefits762 706 (refer note 33.2.2) 706 812

Transferred to liabilities directly associated with assets (11) – classified as held-for-sale – (101)

4 348 2 422 2 422 4 348

COMPANY GROUP



25. LONG-TERM BORROWINGS (refer annexure A)15 940 17 241 17 535 16 534

18 234 16 089 Total long-term borrowings at the beginning of the year 19 352 27 297477 1 041 Raised 1 222 858

(2 840) (149) Repaid (997) (4 778)(1) 27 Foreign exchange movement 27 5

219 303 Discount on bonds amortised 303 219

16 089 17 311 19 907 23 601Current portion of long-term borrowings redeemable within one year transferred to short-term borrowings

(149) (70) (refer note 30) (2 372) (2 818)Transferred to liabilities directly associated with

– – assets classified as held-for-sale – (4 249)

Comprising:Unsecured liabilities

14 553 14 853 Rand denominated 14 853 14 553

15 486 15 486 Bonds at nominal value 15 486 15 486(941) (638) Unamortised discounts (638) (941)

14 545 14 848 Bonds at carrying value 14 848 14 5458 5 Other unsecured liabilities 5 8

57 44 Unsecured foreign currency denominated 44 61

1 479 2 414 Secured loans and capitalised leases 2 800 2 707

1 289 2 242 Rand denominated 2 623 4 769190 172 Foreign currency denominated 177 2 187

Transferred to liabilities directly associated with – – assets classified as held-for-sale – (4 249)

– – Rand denominated promissory notes 2 210 2 031

16 089 17 311 Total long-term borrowings 19 907 19 352Current portion of long-term borrowings redeemable within one year transferred to short-term borrowings

(149) (70) (refer note 30) (2 372) (2 818)

15 940 17 241 17 535 16 534

The rand denominated unsecured local bonds are redeemable between 1 April 2008 and 15 July 2014 and bear interest at rates rangingbetween 7,5% and 16,5% (refer annexure A). Rand denominated unsecured Euro bonds bear interest between 10% and 13,5% and arerepayable in 2028 and 2029 (refer annexure A).

Foreign currency unsecured loans are denominated in Japanese yen. These loans bear interest at 3% and are repayable in March 2009.

Rand denominated capitalised finance lease liabilities bear interest at rates ranging between 11,25% and 12,05% with all rates linkedto prime. These liabilities are repayable over periods between 2007 and 2017.

Rand denominated domestic loans carry a weighted average cost of debt ranging between 8,5% and 15,33% with all rates linkedto prime. These liabilities are repayable over periods between 2011 and 2017.

Foreign currency secured loans are denominated in United States dollars and bear interest between 6,17% and 6,27% and arerepayable in November 2008 and November 2010.

Foreign currency denominated capitalised finance lease liabilities bear interest between 2% and 6% and are repayable between 2007and 2016.

The promissory notes are zero coupon notes and bear interest at JIBAR plus 40 basis points. They are redeemable at the Company’sdiscretion between 2007 and 2008.

COMPANY GROUP




26. PROVISIONS830 925 Comprising 928 847

2 163 2 494 Total provisions at the beginning of the year 2 546 2 7941 814 2 820 Provisions made during the year and unwinding of discounts 2 822 2 227

(1 466) (2 005) Provisions released/utilised (2 047) (1 982)(1 664) (2 367) Short-term provisions classified as current liabilities (2 376) (1 699)

Transferred to liabilities directly associated with assets(17) (17) classified as held-for-sale (17) (493)

109 96 Third party claims 96 109

96 109 Balance at the beginning of the year 109 97196 142 Provisions made during the year 142 196

(183) (155) Provisions released/utilised (155) (184)

36 60 Customer claims 60 36


(59) (7) Utilised during the year (7) (63)

921 1 024 Leave pay 1 030 928

895 921 Balance at the beginning of the year 928 1 256708 748 Provisions made during the year 748 977

(666) (630) Utilised during the year (631) (913)Transferred to liabilities directly associated with

(16) (15) assets classified as held-for-sale (15) (392)

35 43 Onerous contracts 43 37

83 35 Balance at the beginning of the year 37 125(14) 8 Provisions made during the year 6 (14)(34) – Utilised during the year – (74)

252 297 Decommissioning liability 297 252

227 252 Balance at the beginning of the year 252 22729 61 Provisions made during the year and unwinding of discounts 61 30(4) (16) Utilised during the year (16) (5)

615 1 232 Incentive bonuses 1 232 643

274 615 Balance at the beginning of the year 643 302753 1 183 Provisions made during the year 1 182 787


– – assets classified as held-for-sale – (6)

462 237 Restructuring 237 471


(94) (315) Utilised during the year (315) (101)

COMPANY GROUP



26. PROVISIONS (continued)64 303 Other 309 70




2 494 3 292 Total provisions 3 304 2 546

1 664 2 367 Less: Short-term provisions classified as current liabilities 2 376 1 699

109 96 Third party claims 96 1096 34 Customer claims 34 6

407 545 Leave pay 548 60110 20 Onerous contracts 20 10

– 41 Decommissioning liability 41 –615 1 102 Incentive bonuses 1 102 649459 235 Restructuring 235 459

65 303 Other 309 157Transferred to liabilities directly associated with


830 925 Total long-term provisions 928 847

Third-party claimsThe provision represents the best estimate of known third party claims together with an allowance for claims incurred but not yetreported based on historical experience.

Customer claimsProvision for claims made by customers arising from non-performance on contracts or damage to goods in transit. Settlement of claimsis expected in the following year.

Leave payThis is a provision for unutilised leave at year-end. The leave is expected to be taken over the next two financial years and is calculatedbased on employee total cost to company.

Onerous contractsProvision for the maintenance and repairs of buildings and structures in terms of a lease agreement.

Decommissioning liabilityProvision for the dismantling and removal of an asset as a result of the requirement to restore the site on which the asset is located.The provision has been arrived at by discounting future cash flows.

Incentive bonusesProvision for incentive bonuses in terms of the incentive bonus scheme.

RestructuringProvision for restructuring costs in terms of strategic plans. The majority of this provision is expected to be settled in the next financial year.

COMPANY GROUP




27. DEFERRED TAXATION LIABILITIES50 1 670 Comprising 1 707 52

– 50 Balance at the beginning of the year 52 58(962) – Opening balance restatements – (962)218 965 Income statement charge (refer note 8) 970 229794 655 Raised in reserves 685 794

50 1 670 Total deferred taxation liability 1 707 119Transferred to liabilities directly associated with

– – assets classified as held-for-sale – (67)

Analysis of major categories of temporary differences4 486 2 859 Deferred taxation assets 3 070 8 861

860 1 036 Provisions 1 074 1 450– – Estimated taxation loss 148 3 590

1 261 702 Post-retirement benefit obligations 702 1 261– – Forward sales liability – 491

21 7 Income received in advance 18 463778 1 031 Capitalised lease liability 1 031 778

1 402 – Impairment of investments** – –122 83 Derivatives 93 136

– – Maintenance reserve payments – 25442 – Other 4 438

3 134 4 529 Deferred taxation liabilities 4 843 5 571

46 10 Deferred expenditure 14 663 009 4 409 Property, plant and equipment 4 713 5 406

16 16 Future expenditure allowance 25 3615 – Undrawn funds – 1548 35 Doubtful debts 35 –

– 59 Other 56 48

1 352 (1 670) Net deferred taxation (liability)/asset (1 773) 3 290(1 402) – Deferred taxation assets not raised* (29) (3 409)

Transferred to liabilities directly associated with – – assets classified as held-for-sale 95 67

(50) (1 670) Total deferred taxation liability (1 707) (52)

Estimated taxation losses available for off-set against– – future taxable income (refer note 8) 552 12 380

* The subsidiaries have not raised deferred taxation assets in the current year. The probability of there being sufficient taxable profit against whichthe deferred taxation asset can be utilised is uncertain.

** Deferred taxation asset calculated at the capital gains taxation rate. As the capital loss arising on the sale of South African Airways (Pty) Ltd to theGovernment will not be available for set-off against capital gains realised on the sale of assets to non-Government third parties, the deferred assetarising on the sale of South Africa Airways (Pty) Ltd has not been recognised.

COMPANY GROUP



28. CONSTRUCTION CONTRACTSContracts in progress at the balance sheet date:Construction costs incurred plus recognised

44 122 profits less losses to date 122 44(10) (7) Less: Probable losses due to onerous contract* (7) (10)

34 115 115 34

Recognised and included in the financial statements:Income statement

188 538 Contract revenue 538 188Balance sheet

162 199 Amounts due from customers under construction contracts 199 16212 1 Advances received 1 12

9 20 Retention debtors 20 911 13 Retention creditors 13 11

Contract revenue for coaches is recognised when the completed stage has been signed off as proof of quality satisfaction by the external debtor.

29. TRADE PAYABLES AND ACCRUALS**776 1 277 Trade payables 1 259 1 323

4 265 4 500 Accruals 4 684 11 304

– – Forward sales liability*** – 2 1392 005 2 011 Accrued expenditure 2 119 6 398

34 40 Deposits received 41 6528 22 Deferred income 56 63

– – Frequent flyer rewards programme – 161829 922 Interest 922 888

26 610 Personnel costs 614 67803 525 Public creditors 528 828161 50 Revenue received in advance 50 163379 320 SARS – value added taxation 354 532

Transferred to liabilities directly associated with (64) (68) assets classified as held-for-sale (68) (7 420)

4 977 5 709 5 875 5 207

* Relates to the contract for the upgrade and general overhaul of Class 9E electric locomotives between Alstom and Transwerk.** Included in trade payables and accruals are amounts due to customers in respect of construction contracts (refer note 28).*** This balance represents the unrealised income from tickets sold but not yet flown. The above balance includes the value of coupons sold by South

African Airways (Pty) Ltd, which will be flown and claimed in future periods by code-share and inter-line partners. Refer to the accounting policiesfor details on the use of estimates.

COMPANY GROUP




30. SHORT-TERM BORROWINGS (refer annexure A)Current portion of long-term interest-bearing

149 70 borrowings (refer note 25) 2 372 2 8183 063 5 131* Other short-term borrowings 5 243* 3 063

Transferred to liabilities directly associated with – – assets classified as held-for-sale – (558)

3 212 5 201 7 615 5 323

Other short-term borrowings relate to the market making portfolio and comprises the Group’s position on bonds andother financial instruments.* Included in other short-term borrowings and cash and cash

equivalents is cash of R1,7 billion held on behalf of South African Airways (Pty) Ltd, which is not available for use by the Group.

31. COMMITMENTS31.1 Capital commitments

154 489 Contracted for in US dollars 489 1601 150 909 Contracted for in Japanese yen 909 1 150

988 1 545 Contracted for in euros 1 545 1 00717 211 20 086 Contracted for in SA rands 20 086 17 722

27 7 Contracted for in various other currencies 7 27

19 530 23 036 Total capital commitments contracted for 23 036 20 06645 711 55 153 Authorised by the Directors but not yet contracted for 55 950 48 352

65 241 78 189 78 986 68 418Commitments directly associated with assets

(177) (205) classified as held-for-sale (804) (2 787)

65 064 77 984 78 182 65 631

Total capital commitments are expected to be incurred as follows:

11 717 17 109 Within one year 17 906 12 92953 524 61 080 After one year, but not more than five years 61 080 55 489

65 241 78 189 78 986 68 418Commitments directly associated with assets classified

(177) (205) as held-for-sale (804) (2 787)

65 064 77 984 78 182 65 631

These capital commitments will be financed by the net cash flow from operations, capital market borrowings, through project finance and the use of operating leases.

31.2 Operating lease commitmentsFuture minimum rentals under non-cancellable leases are as follows:Aircraft

– 1 Within one year 33 2 057– – After one year, but not more than five years 182 7 482– – More than five years 50 4 269

– 1 265 13 808Commitments directly associated with assets classified

– – as held-for-sale – (13 726)

– 1 265 82

Land, buildings and structures111 45 Within one year 56 121194 133 After one year, but not more than five years 168 221336 291 More than five years 323 358

641 469 547 700Commitments directly associated with assets classified

(9) (11) as held-for-sale (28) (24)

632 458 519 676

COMPANY GROUP



31. COMMITMENTS (continued)31.2 Operating lease commitments (continued)

Machinery, equipment, furniture and motor vehicles282 229 Within one year 256 287540 201 After one year, but not more than five years 232 556

34 – More than five years – 34


(16) (24) as held-for-sale (82) (17)

840 406 406 860

Security and maintenance contracts25 11 Within one year 11 2627 2 After one year, but not more than five years 2 2828 – More than five years – 29

80 13 13 83

Other15 11 Within one year 11 38

7 16 After one year, but not more than five years 16 22– 2 More than five years 2 –


– – as held-for-sale – (38)

22 29 29 22

31.3 Finance lease commitmentsFuture minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows:Aircraft, machinery, equipment and furniture

23 27 Within one year 195 14110 60 After one year, but not more than five years 257 434

– 177 More than five years 177 –

33 264 Total minimum lease payments 629 575(4) (30) Amount representing finance charges (64) (34)

29 234 Present value of minimum lease payments 565 541

31.4 Lease rentals receivableFuture minimum rentals under operating leases are as follows:Property

99 575 Within one year 581 105249 2 786 After one year, but not more than five years 2 826 257234 4 478 More than five years 4 489 244

582 7 839 7 896 606

Other46 65 Within one year 89 4673 436 After one year, but not more than five years 436 7311 810 More than five years 810 11

130 1 311 1 335 130

COMPANY GROUP




32. CONTINGENT LIABILITIES AND GUARANTEESContinuing operationsRolling stockThe future lease commitments in respect of rolling stock assets have been paid in full to an intermediary lessee. This amount has been deposited with an AAA-rated international institution for the redemption of the lease obligations. These obligations are guaranteed by the Company. No loss is expected to materialise in respect of

1 671 – this guarantee. – 1 671

OtherVarious contingent liabilities estimated where no material

68 – losses are expected to materialise. – 118

Discontinued operationsSun Air (Pty) LtdThe liquidators of Sun Air (Pty) Ltd and a previous shareholder instituted legal proceeding against South African Airways (Pty) Ltd (SAA) for certain alleged conduct by SAA. The maximum liability in this respect is estimated at R275 million. The matterhas been settled at R14 million in respect of the liquidators’ claim. The claim of R178 million by a person to whom the shareholder had ceded the claim,

– – is still pending. – 178

US Department of Justice – Antitrust Division inquirySAA received a subpoena from the US Department of Justice (DoJ) – Antitrust Division to provide information and documentation in respect of a price fixing inquiry in progress within the United States. The allegation is that SAA may have been involved in price fixing in respect of itscargo operations in the US and the DoJ is investigating thisallegation in respect of several other airlines globally. SAA is confident about its prospects of success in refuting the allegations and has initiated the process of engaging with the DoJ in regard to the subpoena. Price fixing is a criminal offence in the United States and if found guilty, SAA’s exposure may include a penalty of up to US$10 million

– – and possible civil claims which may arise from the matter. – 60

OtherThere are numerous court cases in which SAA is a defendant. SAA’s maximum exposure in this regard is estimated at R50 million. – 50

547 – Various guarantees issued in the normal course of business – 4 016

33. POST-RETIREMENT BENEFIT OBLIGATIONSThe Group offers pension benefits through various defined benefit pension funds and one defined contribution fund. The Group also offers post-retirement medical benefits to its employees. Specific retirement benefits are offered to top management and under the Workmen’s Compensation Act. The following sections summarise the relevant components of the benefits and post-retirement medical benefits:

COMPANY GROUP



33. POST-RETIREMENT BENEFIT OBLIGATIONS (continued)33.1 Pension benefits

Transnet has three pension funds, namely the Transnet Retirement Fund; Transnet PensionFund and Transnet Second Defined Benefit Fund. Except for the Transnet Retirement Fund,the IAS 19 Employee Benefits actuarial valuations for the funds are performed annually.The Transnet Pension Funds are governed by the Transnet Pension Fund Act, 62 of 1990.

With regard to the defined benefit funds, the expected return on plan assets has beencalculated based on market expectations at the beginning of the period for returns over theentire life of the related obligation. The estimated return is determined in conjunction withactuaries and market analysts based on the underlying asset base within each fund.

33.1.1 Transnet Retirement FundThe fund was structured as a defined contribution fund from 1 November 2000.All employees of Transnet Ltd are eligible members of the fund. There were 63 165members at 31 March 2007 (2006: 63 967). Actuarial valuations are done at intervals notexceeding three years to determine the financial position. An actuarial valuation wasperformed as at 31 March 2004. The actuaries were satisfied with the status of themember’s credit account then. The total contributions to this fund constitute membercontributions of R577 million (2006: R548 million) and Employer contributions of R578million (2006: R862 million).

33.1.2 Transnet Pension FundThe fund is a closed defined benefit pension fund. Members are current employees ofTransnet who elected to remain as members of the fund at 1 November 2000 and pensionermembers who retired subsequent to that date. There were 11 420 members and pensioners(including South African Airways (Pty) Ltd and Metrorail members and pensioners) at31 March 2007 (2006: 12 267). An actuarial valuation was done as at 31 March 2007 basedon the projected unit credit method. The principal actuarial assumptions used were as follows:Discount rate (%) 7,75 7,50Salary increases– Inflation (%) 4,50 4,00– Promotional (%) 1,50 1,50Expected return on plan assets (%) 10,15 10,00Pension increases (%) 2,00 2,00

The results of the actuarial valuation are as follows:

Benefit liabilityPresent value of obligation (4 456) (5 405)Fair value of plan assets 5 610 5 568

Surplus 1 154 163Unrecognised asset (1 154) (163)

Net liability per the balance sheet – –

The liability recognised for this fund relating to the Company amounts to R Nil. (2006: R Nil).The surplus was not recognised as the rules of the fund do not provide for surpluses to be distributed.

Credit/(charge) to the income statementExpected return on assets 645 525Current service cost (166) (151)Interest cost (460) (419)

19 (45)

GROUP

2007 2006Restated

R million R million



33. POST-RETIREMENT BENEFIT OBLIGATIONS (continued)33.1.2 Transnet Pension Fund (continued)

The credit to the income statement relating to the Company amounts to R20 million (2006: R15 million charge).

Actual return on plan assets 1 844 1 654Actuarial (loss)/gain recognised in statement of recognised income and expense (167) 22

– Actuarial gains 1 179 209– Net asset not recognised (991) (163)– Disposal of businesses (355) (24)

The actuarial (loss)/gain recognised in the statement of recognised income and expenditure relating to the Company amounts to R157 million loss (2006: R22 million gain).

The cumulative actuarial losses recognised in equity (511) (344)Disposal of businesses 2 –

(509) (344)

Movements in the net asset/(liability) recognised in the balance sheetOpening net asset/(liability) 163 (132)Income/(expense) as above 19 (45)Actuarial gains recognised in equity 1 179 209Disposal of businesses (355) (24)Contributions paid 148 155

Surplus 1 154 163Asset not recognised (1 154) (163)

Closing net liability – –

Reconciliation of movement in benefit liabilityOpening benefit liability (5 405) (4 950)Current service cost (166) (151)Interest cost (460) (419)Actuarial loss recognised in equity (20) (920)Benefits paid 225 237

(5 826) (6 203)Disposal of businesses 1 370 798

Closing benefit liability (4 456) (5 405)

Reconciliation of movement in fair value of plan assetsOpening fair value of plan assets 5 568 4 818Expected return 645 525Actuarial gains 1 199 1 129Contributions by employer 86 87Contributions by members 62 68Benefits paid (225) (237)

7 335 6 390Disposal of businesses (1 725) (822)

Closing fair value of plan assets 5 610 5 568

2007 2006 2005 2004 2003Summary of actuarial valuation results R million R million R million R million R millionfor past periodsPresent value of defined benefit obligation (4 456) (5 405) (4 950) (4 199) (4 111)Fair value of plan assets 5 610 5 568 4 818 4 034 3 120

Surplus/(deficit) 1 154 163 (132) (165) (991)Asset not recognised (1 154) (163) – – –

Net liability – – (132) (165) (991)

The estimated contributions (based on current year contributions) by both employer and members for the year beginning1 April 2007 amount to R148 million (2006: R155 million).

GROUP

2007 2006Restated

R million R million


33. POST-RETIREMENT BENEFIT OBLIGATIONS (continued)33.1.2 Transnet Pension Fund (continued)

The major categories of plan assets as a % of total plan assets are:Equity (%) 65 71Property (%) 10 6Bonds (%) 20 15Cash (%) 5 8

Total (%) 100 100

33.1.3 Transnet Second Defined Benefit FundThe fund was established on 1 November 2000 for the benefit of the retired membersand qualifying beneficiaries. There were 39 533 members at 31 March 2007 (2006: 42 629). This excludes widows and children of pensioners. The all inclusive membership is 81 263 at 31 March 2007 (2006: 84 705). The entire obligation relates to Transnet Ltd.

The actuarial valuation was based on the projected unit method. The principal actuarial assumptions used are as follows:Discount rate (%) 7,30 – 8,91 6,52 – 7,52Expected return on assets (%) 7,07 – 11,12 10,60Pension increases (%) 2,00 2,00The results of the actuarial valuation are as follows:

Benefit liabilityPresent value of obligation (19 548) (20 887)Fair value of plan assets 21 477 19 259

Surplus/(deficit) 1 929 (1 628)Unrecognised asset (1 929) –

Net liability per the balance sheet – (1 628)

(Charge)/credit to the income statementInterest cost (1 496) (1 548)Expected return on plan assets 1 478 1 591

(18) 43

Actual return on plan assets 4 490 5 490

Actuarial gain recognised in statement of recognised income and expense 1 646 2 644

– Actuarial gains 3 575 2 644– Net asset not recognised (1 929) –

The cumulative actuarial gains recognised in equity 5 372 3 726

GROUP

2007 2006Restated

R million R million



33. POST-RETIREMENT BENEFIT OBLIGATIONS (continued)33.1.3 Transnet Second Defined Benefit Fund (continued)

Movements in the net liability recognised in the balance sheetOpening net liability (1 628) (4 315)(Expense)/income as above (18) 43Actuarial gain recognised in equity 3 575 2 644

Surplus/(deficit) 1 929 (1 628)Asset not recognised (1 929) –

Net liability per balance sheet – (1 628)

In the current year, the surplus was not recognised as the rules of the fund do not provide for surpluses to be distributed.

Reconciliation of movement in benefit liabilityOpening benefit liability (20 887) (20 405)Interest cost (1 496) (1 548)Actuarial gain/(loss) 563 (1 255)Benefits paid 2 272 2 321


Reconciliation of movement in fair value of plan assetsOpening fair value of plan assets 19 259 16 090Expected return 1 478 1 591Actuarial gain 3 012 3 899Benefits paid (2 272) (2 321)

Closing fair value of plan assets 21 477 19 259

The major categories of plan assets as a % of total plan assets are:Equity (%) 35 34Property (%) 1 12Bonds (%) 57 12Cash and net current assets (%) 7 42

Total assets at market value (%) 100 100

Summary of actuarial valuation results for past periods2007 2006 2005 2004 2003

R million R million R million R million R million

Present value of defined benefit obligation (19 548) (20 887) (20 405) (18 463) (18 521)Fair value of plan assets 21 477 19 259 16 090 15 024 13 239

Surplus/(deficit) 1 929 (1 628) (4 315) (3 439) (5 282)

GROUP

2007 2006Restated

R million R million


33. POST-RETIREMENT BENEFIT OBLIGATIONS (continued)33.1.4 Top Management Pensions and Workmen’s Compensation Act pensioners

The Top Management Pensions are additional benefits to top up pensions received to eliminatethe effects of any early retirement and resignation penalties applied under the Group’s existing pension fund schemes to management appointed prior to 1 April 1999. There were 530 members at 31 March 2007 (2006: 530). The entire obligation relates to Transnet Ltd.

The Workmen’s Compensation Act benefit relates to the pension benefits that the Company pays to current and former employees who were disabled whilst in service prior to the corporatisation of Transnet in 1990. There were 1 925 members at 31 March 2007 (2006: 1 925).

Actuarial valuations for both benefits were performed to determine the present value of the obligations. Similar valuations were done at the previous balance sheet date. The projected unit credit method was used to value the obligations. There are no plan assets held to fund these obligations.

The following summarises the components of expense and liability recognised in the financial statements together with the assumptions adopted.

Top Management Pension FundThe principal assumptions in determining the benefits are as follows:Discount rate (%) 7,75 7,50Salary increases

Inflation (%) 4,75 4,50Promotional (%) 1,50 1,50

Pension increase (%) 2,00 2,00

Benefit liabilityPresent value of obligations (113) (116)

Liability recognised in the balance sheet (113) (116)

Charge to the income statementInterest cost (10) (8)Current service cost (1) (1)

(11) (9)

Actuarial gain/(loss) recognised in the statement of recognised income and expense 4 (17)The cumulative actuarial gains recognised in equity 5 1

Reconciliation of movement in benefit liabilityOpening benefit liability (116) (99)Expense as above (11) (9)Actuarial gain/(loss) 4 (17)Contributions paid 10 9

Benefit liability at year-end (113) (116)



Present value of defined benefit obligation (113) (116) (99) (99) (123)

Deficit (113) (116) (99) (99) (123)

The estimated contribution (based on current year contribution) for the year beginning 1 April 2007 is R9 million (2006: R9 million).

GROUP

2007 2006Restated

R million R million



33. POST-RETIREMENT BENEFIT OBLIGATIONS (continued)33.1.4 Top Management Pensions and Workmen’s Compensation Act pensioners (continued)

Workmen’s Compensation Act pensionersThe principal assumptions in determining the benefits are as follows:Discount rate (%) 7,75 7,5Pension increase (%) 4,75 4,5Inflation rate (%) 4,75 4,5



Charge to the income statementInterest cost (18) (18)

(18) (18)

Actuarial loss recognised in statement of recognised income and expense – (26)The cumulative actuarial losses recognised in equity (19) (19)

Reconciliation of movement in benefit liabilityOpening benefit liability (247) (224)Interest cost (18) (18)Actuarial loss – (26)Contributions paid 27 21

Benefit liability at year-end (238) (247)



Present value of defined benefit obligation (238) (247) (224) (204) (211)

Deficit (238) (247) (224) (204) (211)

The estimated contribution (based on current year contribution) for the year beginning 1 April 2007 is R27 million (2006:R21 million).

GROUP

2007 2006Restated

R million R million


33. POST-RETIREMENT BENEFIT OBLIGATIONS (continued)33.1.5 Black Widows’ Pension Benefit

The benefit relates to pensions that the Group has voluntarily elected to make payable to the widows of black pensioners who retired from Transnet during the period 16 December 1974 to 1 April 1986 and who subsequently died prior to 1 November 2000 and whose spouses are currently not entitled to a spouse’s pension from either the Transnet Pension Fund or the Transnet Second Defined Benefit Fund. The scheme is now closed and at 31 March 2007, there were 3 045 widows belonging to this fund (2006: 3 240). The entire obligation relates to Transnet Ltd.

The actuarial valuation was based on the projected unit credit method. The principal actuarial assumptions used are as follows:Discount rate (%) 7,75 7,5Inflation rate (%) 4,75 4,5Expected return on assets (%) 4,75 4,5Pension increase (%) 2,00 2,00

Benefit liabilityPresent value of obligation (73) (78)Fair value of plan assets 77 79

Asset recognised in balance sheet 4 1

Charge to the income statementExpected return on assets 5 4Interest cost (5) (6)

– (2)

Actual return on plan assets 7 5Actuarial gain/(loss) recognised in the statement of recognised income and expense 3 (5)The cumulative actuarial gains recognised in equity 19 16

Movements in the net asset recognised in the balance sheetOpening net asset 1 8Expense as above – (2)Actuarial gain/(loss) recognised in equity 3 (5)

Closing net asset 4 1

Reconciliation of movement in benefit liabilityOpening benefit liability (78) (75)Interest cost (5) (6)Actuarial gain 1 (6)Benefits paid 9 9

Closing benefit liability (73) (78)

Reconciliation of movement in fair value of plan assetsOpening fair value of plan assets 79 83Expected return on assets 5 4Actuarial gains 2 1Benefits paid (9) (9)

Closing fair value of plan assets 77 79



Present value of defined benefit obligation (73) (78) (75) (64) –Fair value of plan assets 77 79 83 55 –

Surplus/(deficit) 4 1 8 (9) –

No actuarial valuations were performed for this fund in the 2003 financial year. Hence no comparative data for the reconciliationof the movements in the liability and fair value of the plan assets have been reported for this period.

The estimated contribution (based on current year contribution) for the year beginning 1 April 2007 is R Nil (2006: R Nil).

GROUP

2007 2006Restated

R million R million



33. POST-RETIREMENT BENEFIT OBLIGATIONS (continued)33.1.6 HIV/Aids benefits

The Transnet Group offers certain assistance to employees diagnosed with Aids. As this programme is in its infancy,the related data is not sufficient to actuarially value any liability the Group may have in this regard.

33.2 Post-retirement medical benefitsSATS Pensioners’ post-retirement medical benefitsPensioners are the retired employees of the former South African Transport Services (SATS) and their dependants.The liability is in respect of these pensioners and their dependants who have elected to belong to the Transnet in-housemedical scheme, Transmed, whose membership is voluntary.

A post-retirement medical aid benefit liability was created at the corporatisation of Transnet. With effect from 1 April 2000,the liability has been actuarially valued at each balance sheet date. Actual benefits contributed on behalf of the pensioners aresettled against the provision.

Transnet subsidises members at a flat contribution of R800 per month per principal pensioner member. The entire obligationrelates to Transnet Ltd.

Transnet employees post-retirement medical benefitsThis includes the current and past employees of Transnet who are members of Transnet’s in-house medical aid, TransmedMedical Fund. Membership is voluntary.

Transnet subsidises members at a flat contribution of R213 per month per member.

To enable the Company to fully provide for such post-retirement medical liabilities, since April 2000 actuarial valuations areobtained annually. There are no assets held to fund the obligation.

Analysis of benefit expenseThe following summarises the components of the net benefit expense recognised in both the income statement and balancesheet as at 31 March 2007 for both SATS pensioners and Transnet Employees. The projected unit credit method has been usedfor the purposes of determining the actuarial valuation for both the funds.


33. POST-RETIREMENT BENEFIT OBLIGATIONS (continued)33.2.1 SATS pensioners

Discount rate (%) 7,75 7,50

Benefit liabilityPresent value of obligations (1 369) (1 607)

Liability recognised in the balance sheet (1 369) (1 607)

Charge to the income statementInterest cost (117) (133)

(117) (133)

Actuarial gain/(loss) recognised in the statement of recognised income and expense 134 (82)The cumulative actuarial losses recognised in equity (286) (420)

Reconciliation of movement in benefit liabilityOpening benefit liability (1 607) (1 629)Interest cost (117) (133)Company contributions 221 237Actuarial gain/(loss) 134 (82)


Transnet subsidises members at a flat contribution of R800 per month per member. The medical inflation rate has no impact on the aggregate current service cost and interest cost and the benefit liability. However, the assumed discount rate has an impact. The sensitivity of the obligation to a change in the assumed discount rate of 7,75% on the present value of the obligation is as follows:Closing benefit liability based on changes in discount rate:6,75% (2006: 6,5%) (1 453) (1 714)8,75% (2006: 8,5%) (1 296) (1 515)



Benefit liability (1 369) (1 607) (1 629) (1 751) (1 715)

Deficit (1 369) (1 607) (1 629) (1 751) (1 715)

The estimated contribution (based on current year contribution) for the year beginning 1 April 2007 is R221 million(2006: R237 million).

GROUP

2007 2006Restated

R million R million



33. POST-RETIREMENT BENEFIT OBLIGATIONS (continued)33.2.2 Transnet employees

Closing benefit liability based on changes in discount rate (%) 7,75 7,50



The liability directly associated with assets classified as held-for-sale is R14 million (2006: R61 million) for the Group and R11 million (2006: R11 million)for the Company. The net liability for continuing operations is R706 million (2006: R751 million) for the Group.

The liability recognised for this fund relating to the Company amounts to R 717 million (2006: R762 million). The net liability for continuing operations is R706 million (2006: R751 million) for the Company.

Charge to the income statementCurrent service cost (14) (13)Interest cost (63) (68)

(77) (81)

Charge to the income statement relating to the Company is R72 million (2006: R76 million)

Actuarial gain/(loss) recognised in the statement of recognised income and expense 87 (37)

The actuarial gain/(loss) recognised in the statement of recognised income and expenserelating to the Company amounts to R77 million gain (2006: R34 million loss).The cumulative actuarial gains/(losses) recognised in equity 40 (47)

Reconciliation of movement in benefit liabilityOpening benefit liability (812) (808)Expense as above (77) (81)Member and Company contributions 41 43Actuarial gain/(loss) 87 (37)

Closing benefit liability (761) (883)Disposal of businesses 41 71

Net benefit liability (720) (812)

Transnet subsidises members at a flat contribution of R213 per month per member. The medical inflation rate has no impact on the aggregate current service cost and interest cost and the benefit liability. However, the assumed discount rate has an impact. The sensitivity of the obligation to a change in the assumed discount rate of 7,75% on the present value of the obligation is as follows:Closing benefit liability based on changes in discount rate:6,75% (2006: 6,5%) (852) (998)8,75% (2006: 8,5%) (686) (788)



Benefit liability (720) (812) (808) (741) (545)

Deficit (720) (812) (808) (741) (545)

The estimated contribution (based on current year contribution) for the year beginning 1 April 2007 is R41 million (2006:R43 million).

GROUP

2007 2006Restated

R million R million


34. RELATED PARTY TRANSACTIONSThe Transnet Group is a Schedule 2 Public Entity in terms of the Public Finance Management Act (PFMA). It therefore hasa significant number of related parties including other State-owned entities, Government Departments and all other entitieswithin the national sphere of Government. The Group has utilised the database maintained by the National Treasury to identifyrelated parties. A list of all related parties is available at the National Treasury website at www.treasury.gov.za or at theCompany’s registered office.

South African Airways (Pty) Ltd and South African Express Airways (Pty) Ltd conduct a number of transactions viaintermediaries who act as agents. Services rendered by these companies to related parties are measured with reference totheir frequent flyer programme. These transactions are included in the disclosure of transactions below. Transactions between related parties that are not reported in terms of these contracts are not disclosed as such.

In addition, the Company has a related party relationship with its subsidiaries (refer note 12). The Group and Company haverelated party relationships with its associates (refer note 13) and with its Directors and senior executives (key management).

Unless otherwise disclosed, all transactions with the above related parties are concluded on an arm’s length basis.

Furthermore, neither the Group nor any of its related parties is obligated to procure from or render services to theirrelated parties.

Transactions with related entitiesServices rendered to related parties comprise principally transportation (aviation, rail and road) services. Services purchasedfrom related parties comprised principally energy, telecommunications, information technology and property related services.

COMPANY GROUP


The following is a summary of transactions with related parties during the year and balances due at year-end according to Transnet’s records:

Services rendered539 872 Major public enterprises 1 045 692

84 71 Other public enterprises 370 2701 429 864 National Government business enterprises 908 1 438

66 348 Associates 348 97188 193 Subsidiaries – –

2 306 2 348 2 671 2 497

Services received862 823 Major public enterprises 1 529 1 429210 115 Other public enterprises 475 564750 976 National Government business enterprises 983 755475 354 Associates 357 748

2 958 284 Subsidiaries – –

5 255 2 552 3 344 3 496

Amount due from/(to)(39) 307 Major public enterprises* 309 (36)

(3) 11 Other public enterprises 6 (16)(5 830) (6 782) National Government business enterprises** (6 782) (5 830)

(41) (37) Associates (39) (35)(142) 1 213 Subsidiaries – –

(6 055) (5 288) (6 506) (5 917)

During the year the Group expensed R3 million (2006: R16 million) in relation to bad debts on related parties and at year-end the Grouphad a provision of R34 million (2006: R46 million) against bad debts in relation to related parties.

Transactions with key management personnelLoans to key management are included in “Long-term loans and advances” (refer note 15).

Details of key management compensation are set out in the Report of Directors on page 147 to the annual financial statements.

None of key management has or had significant influence in any entity with whom the Group had significant transactions during the year.

During the year, South African Airways (Pty) Ltd was sold to the Department of Public Enterprise for an amount of R2 049 million,which is not included in “other public enterprises” above.

* Includes a loan to Neotel (Pty) Ltd of R226 million.** Includes R7 023 million relating to bonds issued to National Government business enterprises.



35. CASH FLOW INFORMATION35.1 Cash generated from operations

5 844 6 103 Profit/(loss) before taxation 7 968 6 613

5 781 6 179 – Continuing operations 8 222 6 83763 (76) – Discontinued operations (254) (224)

2 246 2 077 Finance costs (refer note 35.3) 2 791 2 900(352) (225) Finance income (304) (418)(340) (47) Dividend income (36) (85)

2 344 3 743 Elimination of non-cash items 3 069 2 234

2 116 2 960 – Depreciation and amortisation 3 020 3 240– Increase in provision for post-retirement

99 202 benefit obligations 395 72– (Reversal of impairment)/impairment of loss

234 (154) making subsidiaries and associates – 141– Impairment/(reversal of impairment) of trade

(101) 120 and other receivables and loans and advances 64 (80)64 115 – Impairment of property, plant and equipment 154 16

136 86 – Fair value adjustments of treasury bonds 86 136331 692 – Movement in provisions 708 273(41) (266) – Other fair value adjustments in the income statement (2 050) (818)

2 33 – Unrealised foreign exchange losses 356 4519 (6) – (Profit)/loss on sale of property, plant and equipment (27) (267)

– (23) – Write-off of loan account (23)82 – – Loss on disposal of the business of Spoornet Zambia – 82

(404) – – Profit on sale of other investments – (411)219 303 – Discount on bonds amortised 303 219

– 164 – Provision for obsolescence 573 –(373) (483) – Fair value adjustment of investment property (490) (372)

(39) – – Other non-cash items – (42)

9 742 11 651 13 488 11 244

35.2 Changes in working capital(211) (425) Increase in inventories (885) (127)(456) 193 (Increase)/decrease in receivables (335) (706)483 644 Increase in payables 1 353 415

(184) 412 133 (418)

35.3 Finance costs2 486 2 412 Total finance costs 3 062 3 352

(21) (32) Net foreign exchange (gains)/losses on translation 32 (233)(219) (303) Discounts on bonds amortised (303) (219)

2 246 2 077 2 791 2 900

COMPANY GROUP



35. CASH FLOW INFORMATION (continued)35.4 Taxation paid

Balance at the beginning of the year(1 514) (1 259) – normal taxation (net) (1 320) (1 545)

Taxation as per income statement(1 746) (1 121) – normal taxation (1 205) (1 881)

– – Taxation liabilities disposed 70 37(40) (3) Acquired through business combination – –

Balance at the end of the year1 259 482 – normal taxation (net) 494 1 283

(2 041) (1 901) (1 961) (2 106)

35.5 Dividends paid to minorities– – Balance at the beginning of the year – –– – Dividends paid to minorities (8) (7)– – Balance at the end of the year – –

– – (8) (7)

35.6 Disposal of division/subsidiary– – Property, plant and equipment 8 577 –– – Intangible assets and goodwill 108 –– – Derivative financial assets 47 –– – Other investments 1 123 –

48 – Inventories 515 48190 – Trade and other receivables 3 305 190

(106) – Cash and cash equivalents/(bank overdrafts) 1 922 (106)– – Post-retirement benefit obligations (248) –

60 – Borrowings (5 903) 60(69) – Provisions (518) (69)

(272) – Trade payables and accruals (7 831) (272)– – Current taxation liability (70) –

(149) – Net asset value excluding consolidation adjustments 1 027 (149)

106 – (Cash)/overdraft disposed of (1 922) 106

35.7 Acquisition of division/subsidiary23 3 Property, plant and equipment – –

3 – Intangible assets and goodwill – –3 – Inventories – –

155 126 Trade and other receivables – –(11) 81 Cash and cash equivalents/(bank overdrafts) – –(11) – Post-retirement benefit obligations – –

383 – Borrowings – –(45) (1) Provisions – –

(281) (184) Trade payables and accruals – –(40) (3) Current taxation liability – –

179 22 Net asset value – –

179 22 Purchase price – –11 (81) Cash/(overdraft) acquired – –

190 (59) Net cash/(overdraft) acquired – –

COMPANY GROUP




36. HEADLINE EARNINGS4 029 5 294 Profit for the year attributable to equity holder 7 387 4 898

(Profit)/loss on disposal of property, plant 19 (6) and equipment (refer note 4.2) (27) (267)

(67) (1 277) Profit on sale of interests in businesses (refer note 4.3) (1 637) (67)Fair value adjustments on investment properties

(373) (483) (refer note 5) (490) (372)Impairment of property, plant and equipment

64 115 (refer note 4.4) 154 16(Reversal of impairment)/impairment of loss making

234 (154) subsidiaries and associates (refer note 4.4) – 141(Reversal of provision)/provision for losses on sale of

(79) – discontinued operations – restructuring costs – (79)8 357 Taxation effects of the above 313 113

3 835 3 846 Headline earnings 5 700 4 383

37. CHANGE IN ACCOUNTING POLICY AND OTHER RESTATEMENTSThe Group fully adopted the following standards, amendments to standards, and circulars in the current financial year:• IFRIC 4 Determining whether an arrangement contains a lease;• IAS 39 Financial Instruments: Recognition and Measurement – Fair value option (Amendment to IAS 39 Fair Value

Adjustments);• IAS 39 Financial Instruments: Recognition and Measurement – Financial Guarantee Contracts (Amendment to IAS 39

Financial Guarantee Contracts);• IAS 21 The effects of changes in foreign exchange rates – Net investment in a foreign operation (Amendment to IAS 21

The effects of changes in foreign exchange rates);• Circular 1/2006 Disclosures in relation to deferred taxation; and• Circular 9/2006 Transactions giving rise to adjustments of revenue/purchases.

The principal effects of adopting the above are discussed below:

IFRIC 4 Determining whether an arrangement contains a leaseAlthough not a legal form of a lease, certain arrangements may contain a lease because the fulfilment of the arrangementis economically dependent on the use of an asset and it is unlikely that any parties other than the Group will receive more thanan insignificant part of the output. The effect of adopting IFRIC 4 on the Group’s accounting policies has resulted in therecognition of certain finance and operating leases in terms of IAS 17 Leases. The recognition of such leases has resultedin a retrospective adjustment to the Group’s financial information.

Amendment to IAS 21 The effects of changes in foreign exchange rates – Net investment in a foreign operationIn terms of this amendment, the Group is required to recognise exchange differences that arise on a monetary item that formspart of the Group’s net investment in a foreign operation, as a separate component of equity in the consolidated financialstatements. This has, however, not resulted in a change in current Group policies and practices and as such, no restatement hasbeen recognised in this regard.

Amendment to IAS 39 Financial instruments: Recognition and measurement – fair value optionThis amendment was introduced to restrict the use of the option to designate any financial asset or financial liability to bemeasured at fair value through profit and loss. The Group has elected to adopt the fair value option where designationeliminates or significantly reduces an accounting mismatch, or where a group of financial assets, financial liabilities or both ,is managed by the Group and its performance is evaluated on a fair value basis in accordance with the Group’s riskmanagement or investment strategy, and information about the group of assets/liabilities is provided internally on that basisto the Group’s key management personnel.

This, however, has not resulted in an adjustment to the opening accumulated profit or in changes to what have ordinarily beenrecorded as fair value adjustments in the prior years, or in the current year.

COMPANY GROUP



37. CHANGE IN ACCOUNTING POLICY AND OTHER RESTATEMENTS (continued)Amendment to IAS 39 Financial instruments: Recognition and measurement – financial guarantee contractsThe effect of adopting this amendment on the Group’s accounting policies will impact the recognition of financial guaranteeliabilities in the Group’s financial information. These guarantees are initially to be recognised at fair value, and subsequently,at the higher of the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, andthe amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue.

This amendment has not resulted in a restatement to the financial results.

Circular 1/2006 Disclosure in relation to deferred taxationThe Group has considered the manner in which an asset will be realised or a liability settled in order to determine the amountof deferred taxation that should be recognised for that specific asset or liability. While applicable, this amendment has notresulted in a restatement to the financial results.

Circular 9/2006 Transactions giving rise to adjustments of revenue/purchasesCash discounts and rebates are required to be accounted for as an adjustment to revenue or the carrying value of inventory,as the case may be. Where extended payment terms are granted by the Group, the effect of the time value of money is takeninto account. This change in accounting policy has been applied retrospectively.

This amendment has resulted in a reclassification between revenue and net operating expenses before depreciation andamortisation of R295 million in discontinued operations for Group entities in the previous financial year.

IAS 12 Income taxesThe application of the initial recognition requirements of IAS 12 in relation to revaluation of assets that are not subjectto taxation allowances was amended. The effects of these adjustments are disclosed below.

IAS 40 Investment propertiesProperties that meet the definition of investment properties per IAS 40 Investments Properties were reclassified fromproperty, plant and equipment to investment properties retrospectively. The carrying values of these properties have beenrestated to fair value in accordance with IAS 40.

The impacts of the changes in accounting policies and other restatements are summarised below:

COMPANY GROUP

1 April 31 March 31 March 1 April2005 2006 2006 2005


INCOME STATEMENTProfit for the year attributable to equity holder,

3 670 as previously reported 4 539

359 Net effect of restatements 359

25 IFRIC 4 adjustments 25(5) – Deferred taxation impact (5)

398 Increase in investment properties 398(59) – Deferred taxation impact (59)

4 029 Restated profit attributable to equity holder 4 898

BALANCE SHEETEquity attributable to shareholder, as

19 802 25 438 previously reported 27 593 21 0181 487 1 820 Net effect of restatements 1 820 1 487

(5) 20 IFRIC 4 adjustments 20 (5)1 (4) – Deferred taxation impact (4) 1

530 928 Increase in investment properties 928 530(73) (132) – Deferred taxation impact (132) (73)

1 034 1 008 Deferred taxation adjustments 1 008 1 034

21 289 27 258 Restated equity attributable to shareholder 29 413 22 505



37. CHANGE IN ACCOUNTING POLICY AND OTHER RESTATEMENTS (continued)The detailed impacts of the changes in accounting policies and other restatements on the financial statements are as follows:

INCOME STATEMENTIFRIC 4 adjustmentsDecrease in net operating costs excluding depreciation

39 and amortisation 39(3) Increase in depreciation and amortisation (3)

(11) Increase in finance costs (11)(5) Increase in taxation charge (5)

20 Increase in net profit 20

Investment properties adjustments25 Decrease in depreciation and amortisation 25

373 Increase in fair value adjustments 373(59) Increase in taxation charge (59)

339 Increase in net profit 339

BALANCE SHEETIFRIC 4 adjustments

60 57 Cumulative increase in property, plant and equipment 57 60Cumulative increase in other investments and other

– 28 financial assets 28 –

60 85 85 60

(4) 16 Cumulative increase/(decrease) in reserves 16 (4)65 65 Cumulative increase in long-term borrowings 65 65(1) 4 Cumulative increase/(decrease) in deferred taxation 4 (1)

60 85 85 60

COMPANY GROUP

1 April 2006 2006 1 April2005 2005



37. CHANGE IN ACCOUNTING POLICY AND OTHER RESTATEMENTS (continued)

BALANCE SHEET (continued)

Investment properties adjustments(1 434) (1 409) Cumulative decrease in property, plant and equipment (1 409) (1 434)1 964 2 337 Cumulative increase in investment properties 2 337 1 964

530 928 928 530

457 796 Cumulative increase in reserves 796 45773 132 Cumulative increase in deferred taxation 132 73

530 928 928 530

Deferred taxation adjustments1 034 1 008 Cumulative increase in reserves 1 008 1 034

(1 034) (1 008) Cumulative decrease in deferred taxation (1 008) (1 034)

– – – –

STATEMENT OF RECOGNISED INCOME AND EXPENSEDecrease in taxation of revalued property, plant

(26) and equipment (26)359 Increase in profit for the year 359

333 Increase in total income recognised for the year 333

COMPANY GROUP

1 April 2006 2006 1 April2005 2005


ANNEXURE A for the year ended 31 March 2007


INTRODUCTIONThe Group has a centralised Treasury function and the Treasury performs a supporting role to Transnet divisions and subsidiaries, andhas a responsibility for the management of treasury and financial risks the Group is exposed to in pursuit of its business. Treasury isalso charged with ensuring that Transnet is optimally funded.

The Financial Risk Management Framework (FRM) of the Group was reviewed, substantially updated and approved by the Board overthe last twelve months to address the specific needs of the core divisions. The objectives of the FRM are to ensure that the financial,operational, and strategic risks applicable to the funding, trading and investment activities are identified, monitored and appropriatelymanaged in the context of the Group enterprise wide risk management framework, Public Finance Management Act (PFMA) and otherapplicable regulation.

RISK PHILOSOPHYThe long-term viability, continued success and reputation of Transnet are critically dependent on the credibility of risk management,and the commitment in applying best practice in risk management. The risk management philosophy is underpinned by the Transnetstrategic objectives of focusing on lowering the costs of doing business in South Africa, and enabling economic growth through focusedport, rail, and pipeline businesses, in a manner that is consistent with the shareholder and stakeholder expectations.

RISK PROFILEFinancial risk assessment and analysis are disclosed on a monthly basis to the Group Asset and Liability Management Committee(ALCO) and the Group Executive Committee (Exco). These committees are responsible for reporting financial risk exposures to theTransnet Board of Directors on a bimonthly basis.

The Group’s business operations expose it to foreign currency, interest rate, liquidity, counterparty, commodity and price risk, which arediscussed under headings below.

FUNDING ACTIVITIESThe on balance sheet interest rate risk positions of the Group are reflected below.

Transnet rand bondsDomestic Rand bondsTransnet Ltd issues domestic bonds listed on the Bond Exchange of South Africa. The following rand bonds, excluding market-makingpositions, which are separately analysed, were in issue at 31 March 2007:

Effective 2007 2006Bond Redemption Coupon interest Fair Nominal Fair Nominal

date rate rate (nacs) value value value value% % R million R million R million R million

T004* 1 April 2008 7,50 14,99 4 592 4 661 4 677 4 661T011* 1 April 2010 16,50 13,21 1 608 1 325 1 728 1 325T018* 15 July 2014 10,75 10,39 7 021 6 000 7 177 6 000

A 13 221 11 986 13 582 11 986

Euro rand bonds

Effective 2007 2006Bond Redemption Coupon interest Fair Nominal Fair Nominal

date rate rate (naca) value value value value% % R million R million R million R million

Euro 42* 18 April 2028 13,50 13,86 3 182 2 000 3 266 2 000Euro 42A* 30 March 2029 10,00 15,09 1 854 1 500 1 897 1 500

B 5 036 3 500 5 163 3 500

Group and Company bonds at nominal value (refer note 25) A + B 15 486 15 486

* These domestic rand bonds and Eurorand bonds are for both Company and Group.


OTHER RAND BORROWINGS

2007 2006Fair Company Group Fair Company Group

value nominal nominal value nominal nominalR million R million R million R million R million R million

Other rand denominated** – 5 5 – 8 8Secured rand denominated – 2 259 2 752 – 1 289 4 769

Long-term** – 2 242 2 623 – 1 289 4 769Short-term* – 17 129 – – –

Promissory notes** – – 2 210 – – 2 031Other short-term borrowings fair valued* 1 492 1 417 1 417 1 889 1 618 1 618

Other short-term borrowings held

at amortised cost* – 1 611 1 611 – 174 174

Commercial paper* – 2 000 2 000 – 1 000 1 000

Domestic rand loans 1 492 7 292 9 995 1 889 4 089 9 600

Total domestic borrowings 22 778 25 481 19 575 25 086

** Refer note 25* Refer note 30 (included in other short-term borrowings)

The rand secured loans are secured over aircraft and capitalised leasehold improvements.

Since the new commercial paper programme was launched during February 2006, the shareholder has approved the increasing ofthe issue size from R2,5 billion to R5 billion. The issue is not guaranteed by the Government and is listed on the Bond Exchange ofSouth Africa (BESA). This programme is utilised to finance working capital requirements at a very reasonable cost for the Group.

Interest rate swaps with a notional value of R300 million (2006: R300 million) and with a positive fair value of R25 million(2006: R52 million positive) were open at 31 March 2007. During the financial year a loss of R6 million was recognised in the incomestatement comprising a realised gain (cash) of R21 million and an unrealised loss of R27 million. The interest rate swaps were enteredinto to swap part of the T004 borrowings from fixed to floating and carry a fixed interest rate that is equal to the coupon paymentsof the T004.

After accounting for the above interest rate swaps, the interest rate exposure on the long-term domestic borrowings as at31 March 2007 was:

Total Floating Floating Fixed borrowings exposure exposure as borrowings

R million R million % of total R million

2007Group 23 426 6 725 28,71 16 701Company 20 722 4 516 21,79 16 206

2006Group 24 414 4 987 20,43 19 427Company 18 905 710 3,78 18 195

INVESTMENTSInvestments are only allowed with international counterparties with a minimum international long-term credit rating of A- and domesticcounter parties with a minimum national long-term credit rating of A- (zaf) as rated by a recognised rating agency and approved by theBoard as an approved counterparty. In addition to this the counterparty must have a minimum short-term credit rating of A-1 (F1 zaf)to qualify for cash type of investments.

ANNEXURE A continuedfor the year ended 31 March 2007


2007 2006Company Company Group Group Company Company Group Group

Nominal Fair value Nominal Fair value Nominal Fair value Nominal Fair valueR million R million R million R million R million R million R million R million

Domestic 691 703 691 704 591 657 1 202 1 269Foreign – – 131 131 – – 874 926

The fair value of the Group’s investments at March 2007 comprise the following:

Domestic Foreign Total

Shares in listed companies – 131 131Market making bonds 150 – 150Short-term deposit 500 – 500Carries and repurchases 52 – 52Other 2 – 2

704 131 835

FOREIGN CURRENCY RISKCurrency risk (FX) exposures are inherent in operational maintenance and capital expenditure programmes. The preferred FX riskmitigating strategy is to enter into rand-based financing and supplier contracts at an acceptable cost. If not achievable, all FX relatedexposures are fully covered as soon as exposures are committed by means of vanilla type approved hedging instruments.The accounting and the financial risk management implications are fully analysed before a hedging strategy is implemented.

Details of significant foreign currency exposures are reflected below. Fair value hedge accounting is applied to the majority of FXrelated liabilities to minimise volatility in the Group’s income statement.

NOMINAL AMOUNTS, FAIR VALUES AND MATURITY PROFILES OF FORWARD EXCHANGE CONTRACTS AND CURRENCY OPTIONSUSED AS HEDGES

Total nominalvalue 2007 2008 2009

million million million million

GroupNominalUS dollars 17 17 – –Japanese yen 29 378 2 840 9 581 16 957Euro 145 90 34 21Australian dollars 10 8 2 –

Total fairvalue 2007 2008 2009


GroupFair valueUS dollars (34) (34) – –Japanese yen (83) (28) (39) (15)Euro 81 53 16 11Australian dollars 2 1 1 –

(34) (8) (22) (4)

* The Group amounts include amounts for a subsidiary, being nominal US dollars 8 million, and fair value (R33 million).


FOREIGN CURRENCY EXPOSURE AND COVER

2007 Exposures 2007Total for future Total Total Uncovered

borrowings expenditure exposure cover exposureforeign foreign foreign foreign foreign

Currency currency currency currency currency currencymillion million million million million

GroupUS dollars 25 36 61 41 20Japanese yen 887 28 491 29 378 29 378 –Euro – 152 152 145 7Australian dollars – 10 10 10 –

Total exposure in rands 232 3 529 3 763 3 552 213

CompanyUS dollars 24 28 52 32 20Japanese yen 887 28 491 29 378 29 378 –Euro – 152 152 145 7Australian dollars – 10 10 10 –

Total exposure in rands 227 3 471 3 698 3 486 212

FOREIGN CURRENCY INTEREST RATE RISKCross-currency interest rate swaps are utilised to hedge foreign currency interest rate risks. The full foreign exchange portfolio hasbeen swapped to a rand-based interest rate risk exposure. The Board has approved a targeted range of fixed interest rates that maybe managed to enable management to take advantage of interest rate cycles.

The following were significant positions at 31 March 2007:

Notional Notionalamount amount

Fair foreign Fair foreignvalue currency value currency

R million million R million million2007 2007 2006 2006

GroupCross currencyUS dollar (111) 24 (184) 30

CompanyCross currencyUS dollar (111) 24 (184) 30



The foreign currency interest rate exposures after taking the interest rate and cross currency swaps into account on 31 March 2007are presented in the table below:

Total Fixedborrowings borrowings

Currency R million R million

GroupUS dollar 177 177Japanese yen 55 55

Long-term ** 44 44Short-term* 11 11

Total 232 232

CompanyUS dollar 172 172Japanese yen 55 55

Long-term** 44 44Short-term* 11 11

Total 227 227

** Refer note 25* Refer note 29 (included in other short-term borrowings)

MARKET MAKING IN TRANSNET BONDSTransnet Ltd makes a market in the T004 and the T011 bond issues, with no market making on the T018 and two Eurorand issues.The Group has adopted a policy that no market making will be done by Transnet on future bond issues.

Government, Public Corporations and Corporate bonds listed on the Bond Exchange of South Africa, domestic interest rate swaps,domestic money market instruments and buy-and-sell-back financial instruments are utilised to hedge the resulting interest rate andliquidity risks.

The resulting basis risk is computed on a rand per point per million basis expressed in terms of a weighted average T011 nominalexposure. On 31 March 2007 this exposure amounted to a net short nominal position of R8,3 million (31 March 2006: R1,5 million short).

The following positions in local market bonds were held at year-end.

2007 2006fair value fair valueR million R million

Short positions in listed bondsBonds at nominal value 1 294 1 420Bonds at fair value 1 549 1 889

Long positions in listed bondsBonds at nominal value 140 261Bonds at fair value 202 642

No collateral was held against any market making positions at reporting date.

LIQUIDITY RISKLiquidity risk is managed to ensure that the Group is in a position to advance funds for capital expenditure, redeem and service loans inmoney and capital markets, finance operational costs and generate cash for unanticipated financial commitments. Certain thresholds,which are a combination of available cash and unutilised credit facilities are minimum requirements of the approved policy to ensureeffective liquidity risk management. The weighted average duration of money market investments may not exceed 180 days.


The following is a summary of long-term on balance sheet borrowings by currency and redemption:

Totalborrowings Repayable during the financial year ended 31 March

2007 2008 2009 2010 2011 2012 onwardsR million R million R million R million R million R million

GroupUS dollars 177 48 53 37 39 –Japanese yen 55 33 22 – – –

Total foreign currencies 232 81 75 37 39 –Total SA rand 23 426 6 042 3 355 (532)* 1 624 12 937

Total interest-bearing borrowings 23 658 6 123 3 430 (495)* 1 663 12 937Current portion of borrowings (6 123) (6 123) – – – –

Total long-term interest-bearing borrowings 17 535 – 3 430 (495)* 1 663 12 937

Redemption period as % of total 100 – 20 (3) 9 74

CompanyUS dollars 172 45 51 37 39 –Japanese yen 55 33 22 – – –

Total foreign currencies 227 78 73 37 39 –Total SA rand 20 722 3 630 3 129 (571)* 1 597 12 937

Total interest-bearing borrowings 20 949 3 708 3 202 (534)* 1 636 12 937Current Portion of borrowings (3 708) (3 708) – – – –

Total long-term interest-bearing borrowings 17 241 – 3 202 (534)* 1 636 12 937

Redemption period as % of total 100 – 19 (3) 9 75

* The borrowings payable by the Company and Group in 2010 are shown as a receivable, because in that year draw-downs received on structured loans,exceed repayments made on all other loans.

COUNTERPARTY RISKThe counterparty risk policy of the Group is aligned with the detailed requirements of the Treasury Regulations as referredto in the PFMA;– Selection of counterparties through credit risk analysis;– Establishment of investment limits per institution;– Establishment of investment limits per investment instrument;– Monitoring of investments against limits;– Reassessment of investment policies on a regular basis;– Reassessment of counterparty credit risk based on credit ratings; and– Assessment of investment instruments based on liquidity requirements.

Financial assets that potentially subject the Group to concentrations of credit risk consist primarily of cash, short-term deposits,Government and public corporation bonds listed on the Bond Exchange of South Africa and the market value of derivatives and tradereceivables. The Group’s exposures to credit risk in respect of all Treasury related transactions are confined to credible counterpartiesand are managed within Board approved credit limits. Limits are reviewed and approved by the Board on an annual basis. Tradereceivables are presented net of impairments. It is the Treasury’s policy to perform ongoing credit evaluations of the financial positionof its counterparties.

Below is a summary of significant exposures, all within the approved limits, as at 31 March 2007.

2007 2006R million R million

Credit risk (inclusive of marginal risk)** 3 830 2 780Bond issuer risk** 17 269Guarantees 5 696 5 687Trade and other receivables* 3 992 4 149

13 535 12 885

Note: Included in Guarantees (R5 696 million) is a US dollar guarantee of US dollars 2,6 million

* Refer note 18. Trade and other receivables are shown net of impairment losses.

**DEFINITIONS• Credit risk

Credit risk is the potential loss that may arise when a counterparty cannot fulfil its commitments in respect of a financialtransaction.

• Marginal risk (price risk)The risk that a transaction has to be closed-out at a market value loss as a result of the unfavourable movements in market rates.

• Bond issuer riskThe risk that an issuer of bonds will not be able to fulfil its financial obligations according to the terms of the bond issues.

The following diagram reflects the distribution of credit risk, expressed in terms of long-term credit ratings, excluding guarantees andtrade receivables. The non-rated banks are financial institutions situated in Africa. These accounts are monitored on a regular basis toensure that credit limits are not breached.



Transnet Ltd and Transnet GroupRisk per long-term rating

27,7%

0,13%13,5%

26,3%

0,22%

32,15%

Unrated A+ AA

AA– AA+ AAA


COMMODITY PRICE HEDGINGTransnet Ltd has not made use of fuel hedging in the past. The latest Board approved Financial Risk Management Framework nowallows Treasury to hedge fuel risk exposures. The majority of fuel risk exposures are concentrated at Spoornet in respect of dieseltraction fuel.

FAIR VALUEAt 31 March 2007 and 2006 the carrying amounts of cash, short-term deposits, accounts receivable, accounts payable and short-termborrowings approximated their fair values due to the short-term maturities of these assets and liabilities. The fair values of bondslisted on the Bond Exchange of South Africa and those of derivative financial instruments have been based on market values at thereporting date. The fair values represent an approximation as to the carrying value of these instruments at year-end, but these maydiffer from the values that will finally be realised.

CURRENCY CONVERSIONThe mid rates of exchange at 31 March 2007 used for conversion were:

2007 2006

US dollar 7,2160 6,3274Pound sterling 14,1838 10,9708Japanese yen 0,0614 0,0535Euro 9,6132 7,5704Australian dollar 5,8208 4,4785

ANNEXURE Bfor the year ended 31 March 2007


PROPERTY, PLANT AND EQUIPMENT RECONCILIATION AT 31 MARCH 2007

Land, Machinery,buildings and equipment

Aircraft structures and furnitureR million R million R million

GROUPRestated balance at the beginning of the yearHistorical cost and revaluation 1 045 9 575 3 914Accumulated depreciation (469) (1 447) (2 542)Accumulated impairment – (300) (39)

Restated opening net carrying value at 1 April 2006 576 7 828 1 333

Current year movementsAdditions 78 267 682Disposals – (33) (190)Depreciation* (67) (280) (319)Derecognition* – (21) (13)Revaluation – – –Impairment – historical cost and revaluation – (19) (5)Transferred to intangibles, inventories and receivables – – (20)Transfers to non-current assets classified as held-for-sale – (127) (126)Reclassifications – – –Transfer from capital work in progress to assets – 499 159

11 286 168

Closing carrying value at 31 March 2007 587 8 114 1 501

Made up as follows:Historical cost and revaluation 1 123 9 958 3 533Accumulated depreciation (536) (1 709) (1 991)Accumulated impairment – (135) (41)

Carrying value at 31 March 2007 587 8 114 1 501

• Aggregated in note 4.1.


Permanent Rolling Capitalway and Pipeline Port stock and work in

works networks facilities containers Vehicles progress TotalR million R million R million R million R million R million R million

7 617 9 335 18 986 13 142 445 7 446 71 505(2 096) (6 094) (7 296) (4 836) (374) – (25 154)

– (152) (442) (54) (1) (182) (1 170)

5 521 3 089 11 248 8 252 70 7 264 45 181

(48) (12) 48 513 1 9 568 11 097(6) – (110) (56) (1) (10) (406)

(226) (237) (531) (839) (25) – (2 524)(14) – – (365) – – (413)

– 662 1 072 – – – 1 734– – (9) (73) – (20) (126)– – – (142) – (103) (265)– – (1) (198) – – (452)

52 – – 73 – (125) –288 68 1 224 5 008 132 (7 378) –

46 481 1 693 3 921 107 1 932 8 645

5 567 3 570 12 941 12 173 177 9 196 53 826

7 880 10 371 21 476 17 715 585 9 398 82 039(2 313) (6 648) (8 084) (5 415) (407) – (27 103)

– (153) (451) (127) (1) (202) (1 110)

5 567 3 570 12 941 12 173 177 9 196 53 826

ANNEXURE B continuedfor the year ended 31 March 2007


PROPERTY, PLANT AND EQUIPMENT RECONCILIATION AT 31 MARCH 2007

Land, Machinery,buildings and equipment

Aircraft structures and furnitureR million R million R million

COMPANYRestated balance at the beginning of the yearHistorical cost and revaluation 26 9 571 3 857Accumulated depreciation (25) (1 446) (2 500)Accumulated impairment – (299) (27)

Restated opening net carrying value at 1 April 2006 1 7 826 1 330

Current year movementsAdditions – 254 681Disposals – (33) (190)Depreciation* – (280) (319)Derecognition* – (21) (13)Revaluation – – –Impairment – historical cost and revaluation – (8) (5)Transferred to intangibles, inventories and receivables – – (18)Transfers to non-current assets classified as held-for-sale – (127) (126)Reclassifications – – –Transfer from capital work in progress to assets – 499 159

– 284 169

Closing carrying value at 31 March 2007 1 8 110 1 499

Made up as follows:Historical cost and revaluation 26 9 938 3 482Accumulated depreciation (25) (1 707) (1 953)Accumulated impairment – (121) (30)

Carrying value at 31 March 2007 1 8 110 1 499

• Aggregated in note 4.1.


Permanent Rolling Capitalway and Pipeline Port stock and work in

works networks facilities containers Vehicles progress TotalR million R million R million R million R million R million R million

7 672 9 335 18 986 13 142 458 7 409 70 456(2 096) (6 094) (7 296) (4 836) (390) – (24 683)

– (152) (442) (54) – (182) (1 156)

5 576 3 089 11 248 8 252 68 7 227 44 617

(48) (6) 97 517 1 9 580 11 076(6) – (110) (56) (1) (10) (406)

(228) (238) (535) (839) (25) – (2 464)(14) – – (365) – – (413)

– 662 1 072 – – – 1 734– – (9) (73) – (20) (115)– – – (142) – (103) (263)– – (1) (198) – – (452)

52 – – 73 – (125) –288 68 1 224 5 004 133 (7 375) –

44 486 1 738 3 921 108 1 947 8 697

5 620 3 575 12 986 12 173 176 9 174 53 314

7 935 10 377 21 525 17 715 578 9 376 80 952(2 315) (6 649) (8 088) (5 415) (402) – (26 554)

– (153) (451) (127) – (202) (1 084)

5 620 3 575 12 986 12 173 176 9 174 53 314

ANNEXURE Cfor the year ended 31 March 2007


DISPOSAL GROUPS CLASSIFIED AS HELD-FOR-SALE

COMPANY

A B C D E

=A+B =C+D

Intercompanyeliminations Non-current

freight- and other Disposal assets held-dynamics† adjustments‡ groups for-sale Total

Notes R million R million R million R million R million

Assets classified as held-for-saleProperty, plant and equipment a 210 35 245 452 697Intangible assets and goodwill b – – – 11 11Investments in subsidiaries c 1 – 1 461 462Investments in associates and joint ventures d – – – 84 84Loans and advances f – – – 1 258 1 258Inventories h 2 – 2 1 3Trade and other receivables i 128 2 130 176 306Cash and cash equivalents j – – – – –

Total 341 37 378 2 443 2 821

Liabilities directly associated with assets classified as held-for-salePost-retirement benefit obligations k (11) – (11) – (11)Borrowings l (368) 368 – – –Derivative financial liabilities e – – – – –Provisions m (25) – (25) (17) (42)Deferred taxation liabilities n – – – – –Trade and other payables o (95) 3 (92) (68) (160)Current taxation liability p – – – – –Bank overdraft q – – – – –Group loans (127) 127 – – –

Total (626) 498 (128) (85) (213)

The above disposal groups form part of the overall restructuring plan of Transnet to dispose of its non-core entities. The process wasinitiated once PFMA approval in terms of section 54 was obtained. It is management’s expectation that these disposal groups will bedisposed of within the next 12 months. These disposal groups will be disposed of to external third parties as part of a competitivebidding process.

† Included in road segment.‡ Included in the other segment.


GROUP

F G H I J K L M

=F+G+H+I+J =K+L

Viamax Autopax Freight Intercompany(Pty) Ltd† Passenger Dynamics eliminations Non-current

excluding Services Guard freight- and other Disposal assets held-HSA (Pty) Ltd† Risk‡ dynamics† adjustments‡ groups for-sale Total


1 074 60 – 210 248 1 592 452 2 0442 – – – – 2 10 12– – – 1 (1) – – –– – – – – – 101 101– – – – – – 1 258 1 258– 3 – 2 – 5 1 6

113 11 2 128 (74) 180 176 356139 1 19 – (24) 135 – 135

1 328 75 21 341 149 1 914 1 998 3 912

– (3) – (11) – (14) – (14)(50) (68) – (368) 486 – – –

– – – – – – – –(5) (8) – (25) – (38) (17) (55)

(95) – – – – (95) – (95)(72) (45) (7) (95) 13 (206) (68) (274)(15) – (1) – 24 8 – 8

– – – – – – – –(354) – – (127) 481 – – –

(591) (124) (8) (626) 1 004 (345) (85) (430)

ANNEXURE C continuedfor the year ended 31 March 2007


NOTES TO DISPOSAL GROUPS CLASSIFIED AS HELD-FOR-SALE

COMPANY GROUP


a. PROPERTY, PLANT AND EQUIPMENT– 408 Net carrying value at the beginning of the year 9 936 –– 11 Additions 577 –– (170) Disposals (244) –– (2) Scrapping (70) –– – Disposal of subsidiary/division (8 577) –– – Impairment (28) –– (2) Depreciation (2) –

408 452 Transferred from continuing operations (refer annexure B) 452 9 936

408 697 2 044 9 936

b. INTANGIBLE ASSETS AND GOODWILL– 1 Net carrying value at the beginning of the year 9 –– – Additions 102 –– (1) Disposals (2) –– – Disposal of subsidiary/division (108) –1 11 Transferred from continuing operations (refer note 11) 11 9

1 11 12 9

c. INVESTMENTS IN SUBSIDIARIES (refer annexure D)– 1 Shares at cost– 511 Net amounts owing by subsidiaries

– 512– (50) Provision for impairment and losses

– 4622 224 – Transferred from continuing operations (refer note 12)

2 224 462

d. INVESTMENTS IN ASSOCIATES (refer annexure D)– 567 Balance at the beginning of the year 1 282 –– (447) Disposals (1 145) –– (114) Transfers to other investments (114) –

567 78 Transferred from continuing operations (refer note 13) 78 1 282

567 84 101 1 282

1 480 108 Directors’ valuation 108 1 480

e. DERIVATIVE FINANCIAL ASSETS AND LIABILITIES– – Derivative financial assets – 180

– – Opening balance 180 –– – Income statement credit 69 –– – Derivatives raised and settled (202) –– – Disposal of subsidiary/division (47) –– – Transferred from continuing operations (refer note 14) – 180

f. LOANS AND ADVANCES– – Balance at the beginning of the year – –– 1 258 Transferred from continuing operations (refer note 15) 1 258 –

– 1 258 1 258 –


GROUP


15 – g. OTHER INVESTMENTS – 1 007

2 3 h. INVENTORIES 6 469

121 306 i. TRADE AND OTHER RECEIVABLES 356 3 040

– – j. CASH AND CASH EQUIVALENTS 135 332

k. POST-RETIREMENT BENEFIT OBLIGATIONS– 11 Balance at the beginning of the year 101 –– – Current year provision 177 –– – Disposal of subsidiary/division (248) –– – Settlements during the year (34) –– – Actuarial losses 18 –

11 – Transferred from continuing operations (refer note 24) – 101

11 11 14 101

k.(i) Flight Deck Crew (FDC) Pension FundThe liability relates to additional benefits to members of the flight deck crew (FDC), who are employees of SAA. These additional pension benefits are required to equate to the increases that would have been applied to the total cost of employment for the years commencing 16 March 1999 to 16 March 2000. This liability was recognised forthe first time in 2003.

Benefit liability– – Opening benefit liability (5) (5)– – Raised during the year – –– – Settlement during the year – –

– – Closing benefit liability (5) (5)

– – Disposal of SAA 5 –

– – Net benefit liability – (5)

k.(ii) SAA (UK) Pension FundSAA operates the SAA (UK) Pension Scheme for employees based in the United Kingdom. The scheme has defined benefit (final salary) and defined contribution (money purchase) sections. No person is eligible to participate in the final salary section in respect of pensionable after 30 June 2003 unless they were already participating in the final salary section at the date and their 63 birthday falls before 1 June 2013.

Benefits for a final salary member are mainly calculated on a formula of 1/60 x final salary x years of membership of the final salary section. Final salary means the average of the last three pensionable salaries preceding retirement or date of leaving the scheme, if this is earlier. Pensionable salary is defined as basic salary less the state lower earning limit (with a pro rata adjustment for part timers) at the beginning of each scheme year (1 July).



GROUP

2007 2006Restated

R million R million

k.(ii) SAA (UK) Pension Fund (continued)Benefits for a money purchase member are determined by the contributions paid into a member’s pension account, the investment returns on those contributions and the cost of purchasing an annuity at retirement.

The fund had 13 active members, 11 deferred members and 25 pensioners as at 31 March 2007 (2006: 16 active members and 21 pensioners).

Some members have entitlements in both the final salary section and the money purchase sections.

The following only refers to the final salary section and specifically excludes all money purchase assets and liabilities including annuities purchased at retirement in respect of money purchase entitlements.

Actuarial valuationActuarial valuations are carried out, at intervals not exceeding three years, to determine the financial position of the final salary section. The fund was valued using the projected unit credit method as required by IAS 19 Employee Benefits in March 2007. The fund had a surplus of R19,5 million at the date.

The employer’s pension contributions for the year to 31 March 2008 are expected to amount to approximately R6,6 million (2006: R5 million). These exclude employer’s pension contributions to the money purchase section, the Group Life premiums which are paid by the employer.

The principal actuarial assumptions used were as follows:Discount rate (%) 5,4 4,9Expected return on assets (%) 6,4 5,9Price inflation (%) 3,3 3,0Expected rate of salary increases (%) 5,8 5,5Pension increases in payment (%) 3,3 3,0Pension increases during deferment (%) 3,3 3,0

The results of the actuarial valuation are as follows:Benefit assetPresent value of obligation (68) (55)Fair value of plan assets 87 58

Surplus 19 3Unrecognised assets (19) (3)

Net liability per the balance sheet – –

The asset that has arisen in the current year, has not been recognised as it is not known which party would eventually benefit from it.


GROUP

2007 2006Restated

R million R million

k.(ii) SAA (UK) Pension Fund (continued)Credit to the income statementInterest cost (3) (3)Current service cost (1) (1)Exchange differences on foreign plans – 6Expected return on assets 5 7

1 9

Actual return on plan assets 7 12

Actuarial gain recognised in the statement of recognised income and expenditure (7) –The cumulative actuarial gains recognised in equity which has been disposed of 9 –

Movement in the net asset/(liability) recognised in the balance sheetOpening net liability – (10)Expenses as per above 1 9Actuarial gains in equity 7 –Contribution paid 7 4Exchange difference 1 –

Surplus 16 3Unrecognised asset (16) (3)

Closing net liability – –

Reconciliation of movement in benefit liabilityOpening benefit liability (55) (58)Current service cost (1) (1)Interest cost (3) (3)Actuarial gain/(loss) 5 (5)Exchange differences on foreign plans (17) 11Benefits paid 3 1


Reconciliation of movement in fair value of plan assetsOpening fair value of plan assets 58 48Expected return on assets 5 7Contributions by employer 7 4Actuarial gains 2 5Exchange difference on foreign plans 18 (5)Benefits paid (3) (1)

Closing fair value of plan assets 87 58

The major categories of plan assets as a % of total plan assets are:Equity (%) 80 84Debt instruments (%) 20 9Other assets (%) – 7

100 100



GROUP

2007 2006Restated

R million R million

k.(iii) SAA (German) Pension FundSAA operates a retirement plan for its German-based permanent employees. The scheme is a defined benefit fund. The scheme consists of three groups which are entitled to different benefits as follows:

Group 1: Those in the employment of SAA before 1976.

All employees who were members in this group have retired and the scheme has therefore been closed with effect from March 2004.

Group 2: Those in the employment of SAA from April 1976 to December 1988.

Group 3: All new employees who joined SAA after 1 January 1988.

The benefits payable to groups 2 and 3 are determined with reference to the rules of the scheme and are based on the % of the average salary for the last 12 months multiplied by the number of years of pensionable service plus a cash lump sum. The retirement age for all employees is 63 years.

SAA has taken an insurance policy to cover all the promised employment benefits, but retains the legal obligation to pay further contributions if the insurer does not pay all employee benefits relating to employee service in the current and prior periods.

The employer contributes 100% and the employee makes no contribution towards this retirement plan.

The contributions for the year beginning 1 April 2007 are estimated at R2 million (2006: R2 million).

Actuarial valuationActuarial valuations in terms of the rules of the scheme are done at intervals not exceeding three years, to determine its financial position. The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation was carried out in April 2006 using the projected unit credit method.

The results of the actuarial valuation showed that the scheme was fully funded.

The principal actuarial assumptions used were as follows:Discount rate (%) 4,5 5,1Expected rate of salary increases (%) 2,0 2,0Future pension increases (%) 4,5 3,0


GROUP

2007 2006Restated

R million R million

k.(iii) SAA (German) Pension Fund (continued)The results of the actuarial valuation are as follows:Benefit (liability)/assetPresent value of obligation (175) (122)Insurance policy (expected payout value) – 162

Net (under-insured)/over-insured balance not recognised (175) 40

Charge to the income statementCurrent service costs (15) (2)Interest costs (8) (6)

(23) (8)

Insurance policy (expected payout value)The insurance policy payout values expected per category of employees determined by Prorente, the re-insurer for the German scheme are R112 million at the end of March 2007 (2006: R162 million). This policy is taken out exclusively to fund the retirement benefit obligations for SAA employees in Germany when they reach the retirement age of 63.

Reconciliation of movement in benefit liabilityOpening benefit liability (122) (126)Current service cost (15) (2)Interest cost (8) (6)Exchange difference on foreign plans (35) 8Benefits paid 5 4

Closing benefit liability (175) (122)Disposal of South African Airways (Pty) Ltd 175 –

Net benefit liability – (122)

k.(iv) Flight Deck Crew Disability Benefit FundSAA has an agreement with the Flight Deck Crew (FDC) members who are on permanent employment to top up the disability benefits payable by the Transnet defined benefit fund. In terms of the rules of the Transnet defined contribution fund all employees are entitled to 75% of the members’ pensionable salary payable when a member becomes disabled before the normal retirement age of 63. The agreement with FDC members is for SAA to pay a further 25% in addition to what the member would receive from the pension fund in the case of disability. The members or SAA make no additional contribution towards these benefits, these benefits are therefore unfunded.

The actuarial valuation for this liability was performed for the first time in March 2007. In terms of IAS 19 Employee Benefits the disability benefits should be recognised as part of other long-term employee benefits. The benefit should be measured based on the same principles applicable to a defined benefit fund. The actuarial valuation was performedusing the projected unit credit method.

The service costs and interest cost for 2008 are expected to amount to R4 million.



COMPANY GROUP


k.(iv) Flight Deck Crew Disability Benefit Fund (continued)The principal actuarial assumptions used were as follows:Discount rate (%) 8,40 7,75Expected rate of salary increases (%) 7,78 6,99Future pension increases (%) 5,68 4,89

The results of the actuarial valuation are as follows:Closing benefit liability (35) (35)Disposal of South African Airways (Pty) Ltd 35 –

Net benefit liability – (35)

Charge to the income statementCurrent service cost (2) (4)Interest cost (2) (7)

(4) (11)

Actuarial loss recognised in the statement of recognised income and expenditure 4 –

The cumulative actuarial losses recognised in equity 4 –

Reconciliation of movement in benefit liabilityOpening benefit liability (35) (24)Current service cost (2) (4)Interest cost (2) (7)Actuarial loss 4 –


This benefit liability is currently unfunded. SAA is in the process of securing insurance cover which will be solely for the funding of these benefit obligations as they become due.

l. BORROWINGS– – Total long-term borrowings at the beginning of the year 4 807 –– – Raised 1 786 –– – Repaid (1 047) –– – Foreign exchange movement 357 –– – Disposal of subsidiary/division (5 903) –– – Transferred from continuing operations – long-term

portion (refer note 25) – 4 249– – Transferred from continuing operations – short-term

portion (refer note 30) – 558

– – – 4 807


COMPANY GROUP


m. PROVISIONS– 17 Total provisions at the beginning of the year 493 –– 15 Provisions made during the year 92 –– (7) Provisions released/utilised (28) –– – Disposal of subsidiary/division (519) –

17 17 Transferred from continuing operations (refer note 26) 17 493

17 42 55 493

n. DEFERRED TAXATION LIABILITIES– – Opening balance 67 –– – Movements for the year 28 –– – Transferred from continuing operations – 67

– – Closing balance 95 67

64 160 o. TRADE PAYABLES AND ACCRUALS (refer note 29) 274 7 420

– – p. CURRENT TAXATION (ASSET)/LIABILITY (8) 37

– – q. BANK OVERDRAFT (refer note 19) – 7

VotingShares powerissued Effective holding held

SUBSIDIARIES 2007 2006 2007Million % % %

SUBSIDIARIES HELD BY TRANSNETLOCAL SUBSIDIARIES

Transport logisticsViamax (Pty) Ltd ® 15 100 100 100Marine Data Systems (Pty) Ltd † 80 80 80Owner Driver Management (Pty) Ltd * 100 100 100Southern African Airline Holdings (Pty) Ltd 100 100 100South African Airways (Pty) Ltd @ – 100** –Autopax Passenger Services (Pty) Ltd ® 20 100 100 100

Property holdingsTranshold Properties (Pty) Ltd 100 100 100Esselen Park Developments (Pty) Ltd † 100 100 100Transite Properties (Pty) Ltd * 100 100 100Point Waterfront (Pty) Ltd * 51 51 51Proptrade (Pty) Ltd 100 100 100The Bay Waterfront (Pty) Ltd * 100 100 100Marine Growers (Pty) Ltd 100 100 100

ConstructionProtekon (Pty) Ltd † 100 100 100

IT procurementB2B Africa Holdings (Pty) Ltd † 100 100 100

Rolling stock and tractionTranswerk Foundries (Pty) Ltd 100 100 100

Insurance captive cellsSpoornet Guard Risk 100 100 100Freight Dynamics Guard Risk ® 100 100 100

Social responsibilityTransnet Foundation Trust 100 100 100

Investment holdingsNewshelf 697 (Pty) Ltd 100 100 100

* Dormant and in the process of deregistration** Transnet holds 98,2% of South African Airways (Pty) Ltd (SAA) and the other 1,8% is held by the SAA Share Incentive Trust which was consolidated

for the first time in the prior year. Transnet effectively holds 100% of SAA.

® Subsidiaries classified as held-for-sale# Dormant† Dormant and in the process of winding up^ In the process of deregistration@ Sold

ANNEXURE Dfor the year ended 31 March 2007



Interest of Holding Interest of Holding AccumulatedCompany Company impairment

Shares at cost Net profit/(loss) Indebtedness and losses

2007 2006 2007 2006 2007 2006 2007 2006R million R million R million R million R million R million R million R million

15 15 114 (127) 406 465 – –– – – – 219 219 219 219– – – – – – – –

58 58 120 124 336 401 339 459– 2 726 (685) (44) – 8 226 – 9 231

20 20 (31) 12 69 60 49 58

– – 1 1 104 101 65 69– – – – 10 10 10 10– – – – – – – –– – – – – – – –– – 14 (2) (8) 23 25 25– – – – – – – –3 – (1) – – – – –

– – – (96) – – – –

– – – 3 127 126 127 126

– – 30 (15) 85 99 21 42

3 3 7 (1) – – – –1 1 2 (1) – – – –

– – (16) 31 – – – –

– – 1 539 351 – – – –

VotingShares powerissued Effective holding held

SUBSIDIARIES 2007 2006 2007Million % % %

FOREIGN SUBSIDIARIESTransport LogisticsAfrican Joint Air Services Ltd (Uganda) † 57 57 57Freight Logistics International (British Virgin Islands) 23 100 100 100Translease International (Mauritius) 100 100 100Spoornet Do Brazil (Brazil) 100 100 100

Investments in subsidiaries classified as held-for-sale

SUBSIDIARIES HELD BY OTHER SUBSIDIARIESIncorporated in the Republic of South Africa, unless stated otherwiseHeld within South African Airways (Pty) LtdAirchefs (Pty) Ltd @ – 100 –Airchefs International (Pty) Ltd @ – 100 –SAA City Centre (Pty) Ltd @ – 100 –SAA Technical (Pty) Ltd @ – 100 –International Aviation Personnel (Pty) Ltd @ – 100 –Air Tanzania Company Ltd (Tanzania) @ – 49 –

Held within Viamax (Pty) LtdHSA Management Systems (Pty) Ltd ® 100 100 100Viamax Fleet Solutions (Pty) Ltd ® 60 60 60Viamax Logistics (Pty) Ltd ® 100 100 100Viamax Fleet Management (Pty) Ltd ® 100 100 100

Held within Southern African Airline Holdings (Pty) LtdSouth African Express Airways (Pty) Ltd 57 100 100 100

* Dormant and in the process of deregistration** Transnet holds 98,2% of South African Airways (Pty) Ltd (SAA) and the other 1,8% is held by the SAA Share Incentive Trust which was consolidated

for the first time in the prior year. Transnet effectively holds 100% of SAA.

® Subsidiaries classified as held-for-sale# Dormant† Dormant and in the process of winding up^ In the process of deregistration@ Sold

ANNEXURE D continuedfor the year ended 31 March 2007



Interest of Holding Interest of Holding AccumulatedCompany Company impairment

Shares at cost Net profit/(loss) Indebtedness and losses


– – (2) – 384 383 384 38323 23 8 (1) 219 166 – –

– – – – – – – –– – – – – – – –

123 2 846 1 100 235 1 951 10 279 1 239 10 622(36) (2 762) (85) 160 (475) (8 751) (49) (9 289)

87 84 1 015 395 1 476 1 528 1 189 1 333

ANNEXURE D continuedfor the year ended 31 March 2007


Effective holding Shares at cost

2007 2006 2007 2006ASSOCIATES AND JOINT VENTURES* Principal activity % % R million R million

Associatesarivia.kom (Pty) Ltd ® IT service provider 42 42 214 210VAE Perway (Pty) Ltd ® Refurbishment of Perway 35 35 6 6Commercial Cold Storage (Ports) (Pty) Ltd1 Storage and bondage 30 30 – –Port Shepstone & Alfred County Railway Ltd Railway operator 28 28 – –Comazar (Pty) Ltd Transport logistics 32 32 13 13V&A Waterfront Holdings (Pty) Ltd @ Property development

and management – 26 – 424Mossel Bay Waterfront Development (Pty) Ltd #2 Property development

and management 15 15 2 2Equity Aviation Services (Pty) Ltd @ XX Transport logistics – 49 – 35Cape Town Bulk Storage (Pty) Ltd Port operations 50 50 1 1Belldev Properties (Pty) Ltd Property development

and management 50 50 – –AllPort Logistic Terminal (Ghana) † Port operations – – – –RainProp (Pty) Ltd3 Property development

and management 20 20 2 2Joint venturesTranspoint Properties (Pty) Ltd Telecommunication 50 – – –

238 693Investments in associates classified as held-for-sale (220) (465)

18 228

Summarised financial information of significant associates V&A Waterfront arivia.komHoldings (Pty) Ltd (Pty) Ltd.

2007 2006 2007 2006R million R million R million R million

Financial positionAssets – 5 049 691 797Liabilities – 2 613 285 394

Results of operationsRevenue – 792 1 356 1 480Profit before taxation – 1 155 (29) 37Income taxation (expense)/credit – (189) 12 (18)Net profit for the year – 966 (7) 19

* Incorporated in the Republic of South Africa, unless stated otherwise® Associates classified as held-for-sale† Dormant and in the process of winding up# Dormant¥ Total impairment of R141 million (shares at cost: R136 million, post-acquisition reserves: R5 million)@ SoldXX Sold during the current year and consequently the loan has been included in other receivables1 Year ends 30 September2 Year ends 28 February3 Year ends 30 June


Interest of Holding Accumulated Share of post-Company impairment acquisition

indebtedness and losses reserves Total


– – 141 139¥ 5 3 78 74– – – – 17 17 23 231 3 – – 18 16 19 19– 2 – – – – – 28 8 20 22 – – 1 (1)

– – – – – 639 – 1 063

– – 2 2 – – – –– 114 – 12 – 59 – 196– – – – 3 3 4 4

– – – – – – – –– – – – – – – –

– – – – (2) (2) – –

23 – – – – – 23 –

32 127 163 175 41 735 148 1 380– (114) (141) (12) (22) (715) (101) (1 282)

32 13 22 163 19 20 47 98

ANNEXURE Efor the year ended 31 March 2007


STANDARDS AND INTERPRETATIONSAt the date of authorisation of the financial statements, the following standards and interpretations were in issue but not yet effective:

Standards/interpretation Effective date

Revised IAS 23 Borrowing costs Annual periods commencing on or after 1 January 2009*IFRS 7 Financial Instruments: Disclosures

(including amendments to IAS 1 Presentation of Financial Instruments:Capital Disclosures) Annual periods commencing on or after 1 January 2007*

IFRS 8 Operating Segments Annual periods commencing on or after 1 January 2009*IFRIC 8** Scope of IFRS 2 Annual periods commencing on or after 1 May 2006*IFRIC 9** Reassessment of Embedded Derivatives Annual periods commencing on or after 1 June 2006*IFRIC 10 Interim Financial Reporting and Impairment Annual periods commencing on or after 1 November 2006*IFRIC 11** IFRS 2 Group and Treasury Share Transactions Annual periods commencing on or after 1 March 2007*IFRIC 12** Service Concession Arrangements Annual periods commencing on or after 1 January 2008*AC 503** Accounting for Black Economic Empowerment

(BEE) Transactions Annual periods commencing on or after 1 May 2006*

* All applicable standards will be adopted at their effective date or earlier, such as in the case of IAS 23.

** These accounting standards are not applicable to the business of the Group and will therefore have no impact on future financial statements.

The Directors are of the opinion that the application of the relevant standards and interpretations will be as follows:

IFRS 7The disclosures provided in respect of financial instruments in the financial statements for the year ending 31 March 2008, as well ascomparative information, will be compliant with IFRS 7. The disclosure requirements of IFRS 7 require additional disclosure in respectof the following:• Information on credit risk (including but not limited to) disclosure of security or other credit enhancements, credit quality of assets

that have been renegotiated and age analysis of past due financial assets;• Sensitivity analysis in terms of each type of market risk and their impact on profit and loss and equity;• Disclosure of financial assets and liabilities per category as defined in IAS 39; and• Capital objectives and policies.

IAS 23 RevisedIAS 23 will be early adopted in the financial reporting year ending 31 March 2008.

The Group will capitalise borrowing costs that are directly attributable to the acquisition, construction or production of qualifyingassets that commence on or after 1 April 2007. Currently these borrowing costs are expensed. Qualifying assets are assets thatnecessarily take a substantial period of time to get ready for their intended use or sale.

The Group’s existing accounting policy on borrowing costs will change as a result of the adoption of the revised IAS 23. A preliminaryreview of qualifying assets for which the acquisition, construction or production commenced on or after 1 April 2007 indicated thatamendment to the standard will impact the Group. Directors and management have not quantified the impact of this.

IFRS 8IFRS 8 will be adopted by the Group for the first time for the financial reporting year ending 31 March 2010.

In terms of this IFRS, segment reporting will be based on the information that management uses internally for evaluating segmentperformance and when deciding how to allocate resources to operating segments. Such information may be different from what is usedto prepare the income statement and balance sheet. Directors and management have not yet assessed the impact of the segmentaldisclosures.

IFRIC 10This standard prohibits the subsequent reversal of impairment losses recognised in interim reports relating to goodwill, and investmentsin equity instruments classified as available-for-sale or financial assets carried at cost because fair value can not be reliably determined.Directors and management have not yet assessed the impact on the financial results.


Current ratioCurrent assets divided by current liabilities.

DebtInterest-bearing borrowings, post-retirement benefit obligations, derivative financial liabilities, less short-term investments and netcash and cash equivalents.

EarningsProfit from operations before profit on sale of interest in businesses, impairment of assets, dividends received, fair value adjustmentsand net finance costs plus other income and income from associates.

EBITDAEarnings before impairment, taxation, depreciation and amortisation.

EBITDA marginEBITDA expressed as a % of revenue.

EquityIssued capital, reserves and minority interests.

GearingDebt expressed as a % of the sum of debt and equity.

Headline earningsAs defined in circular 7/2002, issued by the South African Institute of Chartered Accountants, separates from earnings all itemsof a capital nature. It is not necessarily a measure of sustainable earnings.

Interest coverProfit or loss from operations after depreciation and amortisation, divided by net finance costs.

Cash interest coverCash generated from operations before working capital changes, divided by net cash finance costs.

Managed assetsTotal assets, excluding derivative financial assets, less current liabilities, exclusive of derivative financial liabilities.

Net assetsTotal assets less total liabilities.

Profit/(loss)Profit or loss after taxation and minority interests.

Operating profitProfit or loss from operations before profit on sale of interest in businesses, impairment of assets, dividends received, fair valueadjustments and net finance costs.

Operating profit marginOperating profit expressed as a % of revenue.

Return on managed assetsOperating profit expressed as a % of managed assets.

Return on average total assetsOperating profit expressed as a % of average total assets.

Return on net assetsProfit before taxation expressed as a % of net assets.

Total debtCurrent and non-current liabilities

Total debt-to-equity ratioTotal debt expressed as a ratio to equity.

GLOSSARY OF TERMS

GLOBAL REPORTING INITIATIVE (GRI) CONTENT INDEX

GRI G3 Disclosure items

1. Strategy and analysis

1.1 – 1.2 Assuring sound accountability Board governanceand governance Executive management

Strategy and transformationEnterprise riskComplianceBusiness intelligence

2. Organisational profile

2.1 – 2.8 Assuring sound accountability Executive managementand governance Strategy and transformation

3. Report parameters

Report scope/profile Assuring sound accountability Sustainability platform3.1 – 3.6 and governance Communication and reporting

Explanation of process Assuring sound accountability Sustainability platform3.7 – 3.11 and governance Communication and reporting

Reporting boundary Assuring sound accountability Sustainability platform3.12 – 3.15 and governance Communication and reporting

GRI content index Assuring sound accountability Sustainability platform3.16 and governance Communication and reporting

Assurance Assuring sound accountability Sustainability platform3.17 and governance Communication and reporting

4. Governance, commitments and engagement

Governance Assuring sound accountability Board governance4.1 – 4.10 and governance Executive management

Strategy and transformationEnterprise riskComplianceBusiness intelligence

Commitments to external initiatives Assuring sound accountability Sustainability platform4.11 – 4.13 and governance Communication and reporting

Stakeholder engagement Engaging our stakeholders for Sustainability platform4.14 – 4.17 mutual benefit Communication and reporting

Economic performance indicators

Economic performance Achieving returns greater than Financial managementEC1 – EC4 the cost of capital Operations management

Market presence Achieving returns greater than Supply managementEC5 – EC7 the cost of capital BBBEE

Indirect economic impact Developing world-class Capital InvestmentEC8 – EC9 infrastructure


Transnet sustainability principal issuesTransnet sustainability principles

Transnet adopted an incremental approach to the GRI Sustainability Guidelines, which provides it with direction onreporting principles, content and performance indicators. In embedding the GRI G3 reporting principles itendeavours to ensure that its Annual Report provides a balanced and reasonable representation of its sustainabilityperformance, becomes comparable to those of other value based companies, and addresses issues of concern to itsarray of stakeholders.

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Page reference where this item is addressed in this Annual Report

1 3 8 10 12 20 42 50 61 85 97 110 122 133 141

1 3 14 20 42

42 60 246

42 60 246

42 60 246

246

50 138

50 61 85 97 110 122 133 138

12 20 42 49 50 60 82 96 108 120 132 138 246

12 20 50 62 87 97 111 123 134 138 IBC

5 6 12 20 42 49 66 81 95 107 119 131 138

2 13 20 42 66 84 96 109 120 132

12 20 42 49 68 87 99 111 123 134

GLOBAL REPORTING INITIATIVE (GRI) CONTENT INDEXcontinued

GRI G3 Disclosure items (continued)

Environmental performance

EN1 – EN28 Managing our environment Environmental managementresponsibly Environmental performance

Labour practices and decent work

Employment Creating a workplace where People managementLA1 – LA3 our people can excel Change and transformation

Employment equity

Labour/management relations Creating a workplace where People managementLA4 – LA5 our people can excel Employee relations

Occupational health and safety Creating a workplace where Employee safetyLA6 – LA10 our people can excel Health, employee wellness

and HIV/Aids

Training and education Creating a workplace where People managementLA11 – LA13 our people can excel Capacity building – Skills

development

Diversity and opportunity Creating a workplace where People managementLA14 –LA15 our people can excel Change and transformation

Employment equity

Human rights

HR1 – HR10 Creating a workplace where People managementour people can excel Employee relations

Society

Community Caring for the communities Corporate social investmentSO1 where we operate

Corruption, public policy and Assuring sound accountability Ethicsanti-competitive behaviour and governance Enterprise riskSO2 – SO6 Compliance

Product/service responsibility

Customer health and safety Caring for the communities Community impact and public PR 1 – PR2 where we operate health and safety

Products/services, marketing Achieving returns greater Marketplace and customer communication and customer than the cost of capital managementprivacyPR3 – PR9


Transnet sustainability principal issuesTransnet sustainability principles


Page reference where this item is addressed in this Annual Report

18 30 56 78 92 104 115 128 136

16 32 69 89 101 112 125 135

17 33 71 90 102 113 126 135

17 28 56 73 90 103 114 127 135

16 33 71 90 102 113 126 135

17 33 70 89 101 113 125 134

16 33 71 90 102 113 126 135

39 74 91 103 115 127 136

23 55 61 86 98 110 122 133

17 28 56 76 91 103 115 127 136

20 66 84 96 109 120 132

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ABBREVIATIONS AND ACRONYMS


Aids Acquired immune deficiency syndromeAMS 16001 Aids management systemAsgiSA Accelerated and Shared Growth

Initiative for South AfricaBBBEE Broad-based black economic

empowermentBCM Business continuity managementBEE Black economic empowermentBOI Board of InquiryCAPECOR Cape corridorCEO Chief Executive OfficerCFO Chief Financial OfficerCIO Chief Information OfficerCIPS Chartered Institute of Purchasing and

SupplyCoGP Code of Good PracticeCOO Chief Operating OfficerCRM Customer relationship managementCSDP Competitive Supplier Development

ProgrammeCSI Corporate social investmentDIFR Disabling injury frequency rateDME Department of Minerals and EnergyDoT Department of TransportDPE Department of Public EnterprisesDPP Detailed procurement policy/proceduresDRC Democratic Republic of CongoDTI Department of Trade and IndustryEAP Employee assistance programmeEE Employment equityEIA Environmental impact assessmentEMC Environmental Monitoring CommitteeEME Emerging Micro EnterprisesEMS Environmental Management SystemEPCM Engineering Procurement and

Construction ManagementERM Enterprise risk managementFET Further Education and TrainingGAAP Generally Accepted Accounting PracticeGCE Group Chief ExecutiveGDP Gross domestic productGFB General freight businessGRI Global Reporting InitiativeHIV Human immunodeficiency virusHR Human resourceslALA International Association of Marine

Aids to Navigation and LighthouseAuthorities

IAS International Accounting StandardsICT Information and communication

technologyIFRS International Financial Reporting

StandardsIMM Infrastructure maintenance manual

IPSA Institute of Purchasing and Supply ofSouth Africa

ISO International Standards OrganisationISPS International Standard Port Facility

SecurityIT Information technologyIT&S Information technology and systemsJBS Joint Bunker ServicesJipsa Joint Initiative on Priority Skills

AcquisitionKPI Key performance indicatorLHS Lighthouse ServicesLMP Lifestyle Management Programmemt Million tonsNATCOR Natal corridorNCR Non-conformance ReportingNEMA National Environmental Management

ActNERSA National Energy Regulator of South

AfricaNIPP National Industrial Participation

ProgrammeNMPP New multi-product pipelineNOSA National Occupational Safety

AssociationNOSCAR NOSA award – considered the ultimate

symbol of excellenceOBC On-board computersOCIO Office of the Chief Information OfficerOEM Original equipment manufacturerOHSAS 18001 An Occupational Health and Safety

Management SystemOHSAS Act Occupational Health and Safety Act in

South AfricaPFMA Public Finance Management ActRFID Radio Frequency IdentificationSAP A business software solutionSARCC South African Railway Commuter

CorporationSDP Supplier Development PlanSHE Safety, health and environmentSHEQ Safety, health, environment and qualitySOE State-owned enterpriseSOP Standard operating procedureSPAD Signals Passed At DangerSPO Strategic performance objectiveTBI Transnet Business IntelligenceTEU Twenty foot equivalent unitTMP Talent Management ProgrammeTSEDI Transnet Foundation Socio-Economic

Development InitiativeTVMF Transnet Value Measurement

FrameworkVCT Voluntary HIV counselling and testing

shareholder expectations transnet mandate … · transnet rail engineering (previously transwerk)...

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